Select Page

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

Chapter 1 Agency
1.       WHO IS AN AGENT? WHEN IS AN AGENCY RELATIONSHIP CREATED?
a.       Gorton v. Doly (The Relationship of Principal and Agent)
                                                               i.      Facts – The son was injured in a car accident while being transported to a school football game. The son’s coach was the driver of the owner’s car. The son and father’s theory of recovery against the owner was based upon the alleged negligence of the coach, acting as the special agent of the owner. The owner argued that no agency relationship existed, because she loaned her car to the coach. However, the court determined that the evidence supported the finding that the relationship of principal and agent existed between the coach and the owner. The court found that the trial court did not err in denying the owner’s motion for mistrial and concluded that the trial court properly instructed the jury. The court concluded that no substantial error occurred in the trial court.
 
                                                              ii.      Jury Verdict – Father/$870, Son/$5,000
 
                                                            iii.      Issue – Was the coach, Russell Garst, the agent of appellant while and in driving her car from Soda Springs to Paris, and in retuning to the point where the accident occurred?
                                                            iv.      Rule of Law – Agency indicates the relation which exist where one person act for another. It has these three principal forms:
1.       Principal and agent
2.       Master and Servant
3.       Employer or Proprietor and Independent contractor
                                                             v.      Rule of Law – Where one undertakes to transact some business or manage some affair for another by authority and on account of the latter, the relationship of principal and agent rises.
1.       It is not essential to the existence of authority that there be a contract between principal and agent or that the agent promise to as such. Restatement Agency §§ 15, 16
2.       Agent does not have to receive compensation. Restatement §16
 
Restatement of Agency §1
                Agency is the 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.
 
1.       Activity that binds the person
2.       Acting on the person’s behalf
3.       Manifestation of consent
 
Society Analysis 
Lowest Cost Avoider – the court attempts to put the burden of bearing the cost on the party who can afford the loss. Courts will typically ignore written agreements and look at the actions of the parties to determine whether an agency relationship exists. Therefore, the driver of the car will often be held liable regardless of a written notice
 
                                                            vi.      Analysis
1.       The dissent disagreed with how the test was applied. He argues that the owner should not be liable for the negligence of the borrower whom she has relinquished control of the car to when the borrower uses the car for his own exclusive purpose. He conducted no business on her behalf. “The rule would seem to be that one who borrows a car for his own use is a gratuitous bailee and not an agent of the owner.”
2.       There does not have to be a defined set of limitations or rules established by the parties in order to a have a principal and agent relationship.
3.       I would have a waiver form designating her as a gratuitous bailee and that she along with her insurance company are not liable for any damages or injuries incurred while the car is not in her physical possession. The coach should also get some type of insurance and the waiver form should be signed by the coach, school, players, and school district attorney and superintendent.
4.       Yes, the court was trying to establish a fiduciary obligation between the person (principal) granting permission to use her car and the coach (agent). Also, on a broader societal scale, trying to hold people liable for injuries that occur for a piece of property that belongs to them but temporarily given to another.
b.       A. Gay Jenson Farms Co. v. Cargill, Inc.
                                                               i.      Facts – The creditor financed the debtor’s grain elevator operation and purchased the majority of the debtor’s grain. At issue was whether the creditor, by its course of dealing with the debtor, became liable as a principal on contracts made by the debtor with the farmers. The court found that an agency relationship was established.
1.       Here, the creditor was an active participant in the debtor’s operations rather than simply a financier. The creditor and the debtor had a paternalist relationship, with the creditor making the key economic decisions and keeping the debtor in existence. Second, under the modern view adopted by the court, since the farmers did not indicate to the creditor that the debtor had settled their accounts with them, the creditor, as principal, was not discharged from liability to the farmers by making a settlement payment to the debtor.
                                                              ii.      Analysis
                                                            iii.      Rule of Law –
1.       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. 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. The existence of the agency may be proved by circumstantial evidence which shows a course of dealing between the two parties. When an agency relationship is to be proven by circumstantial evidence, the principal must be shown to have consented to the agency since one cannot be the agent of another except by consent of the latter. 
2.       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. A security holder who merely exercises a veto power over the business acts of his debtor by preventing purchases or sales above specified amounts does not thereby become a principal.
a.       However, if he takes over the management of the debtor’s business either in person or through an agent, and directs what contracts may or may not be made, he becomes a principal, liable as a principal for the obligations incurred thereafter in the normal course of business by the debtor who has now become his general agent. The point at which the creditor becomes a principal is that at which he assumes de facto control over the conduct of his debtor, whatever the terms of the formal contract with his debtor may be. 
3.       Principal/Agent compared to Buyer/Supplier
a.       One who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself. Factors indicating that one is a supplier, rather than an agent, are: (1) That he is to receive a fixed price for the property irrespective of price paid by him. This is the most important. (2) That he acts in his own name and receives the title to the property which he thereafter is to transfer. (3) That he has an independent business in buying and selling similar property. Under this approach, it must be shown that the supplier has an independent business before it can be concluded that he is not an agent. 
4.       Fraud and Misrepresentation
a.       An undisclosed principal is not discharged from liability to the other party to a transaction conducted by an agent by payment to, or settlement of accounts with, the agent, unless he does so in reasonable reliance upon conduct of the other party which is not induced by the agent’s misrepresentations and which indicates that the agent has settled the account.
Class Notes – August 21, 2008
Always look closely at manifestations of the principal and agent holding out themselves to the third party as such. The kicker in this case was that Cargill told several farmers that they would be no paid and that there was no problem. From a purely business perspective Cargill was just attempting to use Warren to gather the grain, because it was a there was no money to make in the grain elevator business.
 
Fraudulent Misrepresentation on the Books, Embezzlement – Warren
 
Moving from Buyer/Supplier or Creditor/Debtor to Principal/Agent
Veto power over important decisions
Coercing a person to put your own people into mgmt positions
Assuring creditors that they will be paid
 
2.       LIABILITY OF PRINCIPAL TO THIRD PARTIES TO CONTRACT
a.       Authority
                                                               i.      Mill Street Church of Christ v. Hogan
Facts – The employer hired a church member to paint its building, and during previous jobs, it allowed the member to employ his brother (employee) to assist him. The employee was injured on the first day at work, and the employee paid the church member for the hours worked by the employee prior to the injury. The employee filed a claim for workers’ compensation benefits, and the old board denied compensation. The new board later reversed that decision and remanded the case to an administrative law judge to determine the amount of compensation, and the employer appealed. On appeal, the court affirmed the new board’s reversal of the old board’s decision denying benefits and held that because no facts were in dispute, the new board’s consideration of employment status was a question of law, not of fact. The court found that the workers’ compensation statute specifically allowed recovery under both express and implied employment agreements, that it applied to all helpers and assistants of employees whether paid by the employer or employee, and that the employee was an employee of the employer under the statute.
Issue and Holding-
Rule of Law-
Authority to Act (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. 
 
Apparent authority is not actual authority but is the authority the agent is held out by the principal as possessing. It is a matter of appearances on which third parties come to rely.
 
 
Apparent Authority (Section 8, of the Restatement of Agency)
                                                              ii.      Lind v. Schenley Industries, Inc.
Facts – The district court, pursuant to Fed. R. Civ. P. 50(b), entered judgment for appellee employer after a jury found that appellant employee was entitled to compensation and moving expenses. The court reversed the district court’s decision, holding that the evidence was sufficient to support the jury’s verdict. Appellant’s supervisor had inherent authority to offer appellant a raise, the alleged contract between the parties was sufficiently definite and certain to be sustainable, and there was ample evidence of extrinsic circumstances to permit the jury to fix the relevant

s or damage.
Duties
The Agent’s primary fiduciary duty is to be loyal to the Principal. This involves duties:
not to accept any new obligations that are inconsistent with the duties owed to the Principal. Agents can represent the interests of more than one Principal, conflicting or potentially conflicting, only on the basis of full and timely disclosure or where the different agencies are based on a limited form of authority to prevent a situation where the Agent’s loyalty to any one of the multiple Principals is compromised. For this purpose, express clauses in the agreement signed by each Principal with the Agent may identify specific types or categories of activities that will not breach the duty of loyalty and so long as these exceptions are not unreasonable, they will bind the Principals.
not to make a private profit or unjustly enrich himself from the agency relationship.
In return, the Principal must make a full disclosure of all information relevant to the transactions so that the Agent is able to negotiate effectively and pay the Agent either the commission or fee as agreed, or a reasonable fee if none was agreed. If the Agent reasonably incurs expenses, he or she is also entitled to reimbursement.
 
 
Lind v. Schenley Industries, Inc.
Facts – The district court, pursuant to Fed. R. Civ. P. 50(b), entered judgment for appellee employer after a jury found that appellant employee was entitled to compensation and moving expenses. The court reversed the district court’s decision, holding that the evidence was sufficient to support the jury’s verdict. Appellant’s supervisor had inherent authority to offer appellant a raise, the alleged contract between the parties was sufficiently definite and certain to be sustainable, and there was ample evidence of extrinsic circumstances to permit the jury to fix the relevant dates for appellant’s compensation as it did. Another individual had apparent authority to approve appellant’s moving expenses. The court also reversed the district court’s order of a new trial in the event that judgment in favor of appellee was reversed. The introduction into evidence of sales records tending to show commissions due appellant was proper and did not support a grant of a new trial. The subject matter of the litigation was simple and easily comprehended by any intelligent layman, and the district court abused its discretion by substituting its judgment for that of the jury.
Issue –
Rule of Law –
Analysis –
Questions to Consider-
 
Three-Seventy Leasing Corporation v. Ampex Corporation (Computer Core Salesman)
Facts – Plaintiff buyer brought an action against defendant seller for breach of a contract to sell computer core memories. Plaintiff challenged the district court’s determination of damages and its award of costs to defendant, who challenged the determination that an enforceable contract existed. The court affirmed the judgment in part because there was sufficient evidence to support the district court’s finding of an enforceable contract and that the terms of that contract precluded recovery of the type of lost profits. The court concluded that a salesman had apparent authority to accept plaintiff’s offer on behalf of defendant and that a letter could reasonably be interpreted to be an acceptance. The court further concluded that the letter could reasonably have been interpreted as a promise to ship the core memories. The court found that the limitation on consequential damages found in the contract was valid and precluded the recovery of damages for lost profits by plaintiff. The court held that the award of costs to defendant was error and remanded for a reconsideration of that issue. The court directed the district court to enter an award of nominal damages in favor plaintiff.
 
Issue –
 
Rule of Law –
1.       An agent has apparent authority to bind the principal when the P acts in such a manner as would lead a reasonably prudent person to suppose that ht agent had the authority he purports to exercise.
2.       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.
 
Analysis and Rationale–
Questions to Consider-
 
To counter this need to put a clause that requires signatures by both parties that demands that this K is not binding until both parties sign and the computers are delivered. The problem with this is that the relationships are not equal in the real world, and it is usually take it or leave it.
 
 
Next Class Assignments
08/26/08 PP. 25-43 text