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

Chapter 1 – Agency

CHAPTER 1 SEC 1: Who is an Agent?

An Agent is one who consents to act on behalf of someone else with consent of the other person he or she is acting for. (restatement 1)
Someone filing a lawsuit (3rd party) suing the principal and the agent. There are always three parties in a lawsuit. 3rd party sues the principal for acts of the agent.
No contract needed, can be oral
There must be a manifestation to do something on behalf of someone else with that person’s consent
Someone who is acting with consent on behalf of someone else
The Principal (P) is the person who gives the consent for someone to act on their behalf
An absence of K is irrelevant

Three types
1. Principal/Agent
2. Master/Servant
3. Employer/ Independent Contractor

What is doctrine of respondeat superior? The employer is responsible of actions of employees. The agent principal would be the same relationship as long as it is within the Scope of Employment.
They have to prove that the two consented not that they were working for each other.

Who is Liable?

If the 3rd party knows you are acting on behalf of someone else, the Principal is liable

Principle responsible for actions of agent and agent not responsible generally

If the Principal is ambiguous, the Agent is allowed to make a reasonable interpretation; however, the Agent is liable if they do not follow directions.

E.g. If P says to A, “get soda” and A come back with candy bar, A is liable
E.g. If A buys soda for herself and never gives it back to P, then P is still responsible to 3rd parties and P must take action against A.
Therefore A is liable if they take something secretly from the P

P is liable for injuries sustained while A is working on his behalf
Respondeat Superior -> P is liable for injuries

Gordon v. Doty:

Facts: The alleged agency relationship is Doty (principal), the coach (agent), and the 3rd party (Gorton).
The lady at the school allowed the coach to drive her car and players to the high school football game. In this case, the first two elements were easily met, the control element was not as easily met. The court did find that there was consent based on the condition precedent (That he drive the car if he borrows it)
Rule: 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 arises.
Policy Reason for making the principal liable: a principal could have exercised his control differently, thereby having the power to prevent the tort from happening, so should be held liable if a tort occurs.

Agency relationship has (3) parts (REST of AGENCY sec 1):
1. consent by one person to another
2. that the other shall act on the 1st behalf
3. subject to the principal’s control, and consent by the other so to act

A Gay Jenson Farms v. Cargill

Facts: Parties – Farmers (3rd party), Cargill (principal), Warren (agent). Warren is buying grain from farmers and selling it to Cargill. Cargill ends up having massive amounts of control over Warren. It turns out that Warren is unable to pay the farmers so the farmers sue. Here, Cargill went beyond being mere financers to Warren. Cargill had a lot of control, so this made Warren their agent. Here, Cargill crossed the line when the farmers approached them and wanted paid. Cargill said there was no problem with payment.

There were 9 factors that indicated Cargill’s control over Warren. (See page 10-11). Court looks to control to determine the relationship.

Rule: Creditor who assumes control of the business of their debtor, may become liable as principal for the acts of the debtor in connection with the business.

What a creditor can do without creating agency relationship?
1. Insist on receiving information on financial reports.
2. Provide counseling on discrete matters.
3. Recommend consultants.

Outside the Scope
1. Veto power over important decisions.
2. Coercing debtor to put in control designated by creditor
3. Providing other creditors assurance of payment

CHAPTER 1 SEC 2: Liability of Principal to Third Parties in Contract
Agency Authority (5 types):

1. 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 that instruction.

2. implied authority:
REST of AGENCY sec 26.
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.

Mill Street Church (principal) v. Hogan (painter hires help) (Sam – 3rd party; Bill – agent)

Facts: The Elders of the church decided to hire Bill Hogan to paint the church. The Elders decided that another member could be hired, Gary Petty. The church hired Bill before and Bill had his brother Sam help him. Waggoner, elder, told Bill he could hire help with Petty but it did not have to be Petty. Bi

holesale House and Pres. agreed to apply money owed from comm. to sale but it did not happen.
Jan 1957 Lind was transferred back to NY.

The document regarding Lind’s promotion to District Manager was lost. It was unclear as what the incentive compensation was for Lind in his new position. Herrfeldt said it was added incentive with a percentage. Kaufman said it was bonuses and contests. The secretary said that it was a pension.

Rule: An agent can bind a principal despite a lack of authority to do so if it would seem to a reasonable person that the agent possessed such authority.

Three-Seventy Leasing Corporation v. Ampex Corporation

Facts: 370 formed by Joyce to purchase computer hardware from manufacturers for leases to end-users. In Aug 72, Kay, salesman for Ampex, initiated discussions with Joyce regarding the possibility of 370 purchasing computer equipment from Ampex. Joyce began negotiations with EDS for them to lease six units of Ampex computer core from 370. A written document was given to Joyce by Kay at the direction of Mueller, Kay’s supervisor for six core memory units at 100K each and delivered to EDS. The document was to be signed by 370 and Ampex. Joyce signed on 11/6/72. The document was never signed by Ampex. The document when signed by Joyce was on offer to purchase. Kays letter to Joyce on 11/17/72 confirming the delivery dates was acceptance to Joyce’s offer.

Rule: A sales person binds his employer to a sale if he agrees to that sale in a manner that would lead the buyer to believe that a sale had been consummated.

· Apparent authority deals with holding out.
· 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. Further, 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.