Business Organizations
Hussey
Spring 2016
Who is an Agent?
Define agency
(1) “agency” is the relationship caused from the manifestation of consent by one person to another that the other shall act on his behalf
meaning: person A’ manifests intent for person B’ to act on person A’s behalf
principle-agency relationship can be formed even if the parties called the agreement something else ordid not intend the legal consequences. it can be formed and proven on the basis of circumstantial evidence
(2) and subject to his control,
(3) and consent by the other to act.
consent by the other is still required even if the relationship is proven by circumstantial evidence
formation of principal -agency relationship does not require
exchange of compensation; or
a written contract
application of rule
An agency relationship is created once a party consents to act on behalf of another who will assert control.
legal conclusion
an agent is always liable for his/her own tort
if there is an principle-agent relationship then principal will be liable for agents torts as well
case example Gorton v. Doty
a high school football player was traveling to a high school football game. The coach of the team was driving the high school football player in a car owned by a high school teacher.The teacher had instructed the coach that she would let her car be used for transportation so long as the coach would drive it.
the coach was driving negligently causing a car accident where the injuries were suffered.
issue: whether principal -agent relationship was formed between the teacher and the coach once she allowed him to use her car
reasoning
Court asserted that owner would have driven car herself, but coach acted on her behalf because he didn’t want to do the driving herself.
even though there wasn’t any direct facts or testimony indicating that owner intended to drive herself.
the owner exercised control over agent because he drives the car rather than any students thus having the coach adhering to the owner’s control
the coach consented because the coach agreed to adhere to her request that he would drive the car.
Held: a principle-agent relationship was formed between the coach nd the teacher. Thus the agent was liable for his tort and because of the agency relationship, the teacher was liable for the coaches tort as well.
how to avoid problems
tell teacher not to loan out the car so no principle-agent relationship could be formed; or
owner should draft a indemnification agreement to pass risk to the agent; or
be clear and call it a loan (helps owner but,court could still look at substance of agreement and ignore the label of “loan’) ANDin accord with public policy she should get insurance that would cover the coach or anyone who drives the car with her consent. [challenge the elements]
Principal -agent relationship vs. lender-borrower relationship
defining “control” for agency
A number of factors indicate principle’s “control” over the agent, including the following:
(1) principal constant recommendations to agent by telephone;
(2) principal right of first refusal on grain;
**agent can’t sell grain to others until principal is offered 1st
(3) agent inability to enter into mortgages, to purchase stock or to pay dividends without principle’s approval;
**Can’t borrow more money unless Cargill approves
(4) principal right of entry onto agent’s premises to carry on periodic checks and audits;
**ex: principal Show books at any point
(5) principle’s correspondence[communication by exchanging letters with someone] and criticism regarding agent’s finances, officers salaries and inventory;
(6) principle’s determination that agent needed “strong paternal guidance”;
(7) Provision of drafts and forms to agent upon which principle’s name was imprinted;
(8) Financing of all agent’s purchases of grain and operating expenses; and
(9) principle’s power to discontinue the financing of agent’s operations.
gloss and policy
Must consider the totality of the factors to decide whether or not the party has a principal to agent relationship rather than assessing each factor on its own, which can be construe the party as having formed a lender-borrower relationship.
If the party is acting as both a lender and a principal , the court will construe as a principal
plaintiff will attempt to show the alleged principles exercise of control over the alleged agent thus proving a principle-agent relationship
defendant will show the lack of exercised control over the alleged agent thus proving a lender-borrower relationship
identifying the existence of some factors can still result in find a lender-borrower relationship
for example a bank may exercise control and satisfy certain factors while still maintaining a lender-borrower relationship:
a bank would put restrictions on what the lender can buy
a bank would look at lender’s books
a bank could stop payments on lenders
the alleged principal is in a better position to avoid the loss. The alleged principal has more leverage and bigger risk thus alleged principal has incentive to fix the situation
legal result
if the factors test is not satisfied to establish control over an agent, then the court would rule that it was a lender to borrower relationship and not a principal to agent relationship. thus the alleged principal would not share liability with the agents liability
case example Gay Jenson Farms Co. v. Cargill, Inc.
Warren operated a business that buys grain from farmers for resale. Warren needed money. As a result, Warren decided to approach one of its big customers, Cargill, and sought a large money advanc
ex:
employer granted express and implied authority to employee to get x. employee purchases x and y. employer has to pay for both x and y. then employer can sue/fire/rebuke employee for y.
venture will get paid by employer. the employer can then sue employee for the funds or fire or reprimand him. however employer maybe concerned for the bad PR as a result of the suit.
case example
bill Hogan was hired to paint the church. Prior to this, the church had hired Bill for jobs and bill would hire his brother to assist.During the current painting job, the church requested that Bill Hogan use Gary Petty as a helper, but the church explained to Bill Hogan that Gary Petty was difficult to reach. The church never demanded that Petty be used. although it had discussions with the board, the Church never directly informed bill of its intention to restrict bill from hiring his brother
Bill Hogan hired his brother again to help with a difficult portion of the church. Afterwards, Samuel Hogan broke his arm falling off a broken ladder. Bill Hogan was notified by a church elder that the church was insured, and the elder paid Bill Hogan for the hours worked. The church also supplied all the necessary tools, and Bill Hogan bought supplies on the church’s account.
the church did not give bill actual express authority to hire his brother Sam.
the church did provide bill with actual implied authority so that bill hand reasonable belief to hire someone to complete his task. court considered the following factors:
(1) in the past the church had allowed Bill Hogan to hire his brother or other persons when he needed help finishing the project
(2) the Church only suggested Gary Petty to be Bill’s helper but it was not demanded. so Bill had authority to hire whoever he wanted
(3) Bill and Samuel Hogan were never told about the Church’s discussion and intention not to have Samuel Hogan be hired as Bill Hogan’s helper.
(4) Bill Hogan’s painting of the church required another person to help given the nature of the job
(5) the Church had an interest in retaining an agent maintain a safe and attractive place of worship
apparent authority suggests that same is the third party and had no way of knowing he was not allowed to be hired and further still Sam held a reasonable belief that bill had the authority to hire him.
