BUSINESS ASSOCIATIONS FALL 2016 GADINIS

ACTING THROUGH OTHERS: THE LAW OF AGENCY

I. INTRODUCTION TO AGENCY
a. Agency law governs the legal relationships among principals,
their agents, and the third parties with whom the agents interact.
b. Agency law enables an agent to create rights and obligations
between a principal and a 3rd party
i. So it needs its own set of laws, rather than just be covered
by contract.
II. AGENCY FORMATION, TERMINATION, AND PRINCIPALS
LIABILITY
a. Formation An agency is a consensual relationship between the
principal, who grants authority to another to bind her in certain
respects, and the agent, who accepts this responsibility.
i. R3D 1.01: Agency is the fiduciary relationship that arises
when one person (a principal) manifests assent to
another person (an agent) that the agent shall act on the
principals behalf and subject to the principals control, and
the agent manifests assent or otherwise consents so to act.
ii. Special agentsthe agency is limited to a single act or
transaction
iii. General agentsthe agency contemplates a series of
acts or transactions
iv. Disclosed Principalswhen 3rd parties understand that
an agent acts on behalf of a particular principal
v. Undisclosed principalswhen third parties believe an
agent to be the principal
vi. Partially disclosedwhen 3rd parties deal with an agent
without knowing the identity of their principal.
vii. Employee/ServantWhen a principal secures from her
agent the right to control in detail how the agent performs
his tasks (e.g. time devoted to tasks or precautions used)
viii. Independent contractorWhen the principals control
rights are limited and the agent exercises considerable
discretion (e.g. an established business with its own
rights).
b. TerminationEither principal or agent can terminate at any
time, but if the K between them sets a specific time limit then a
decision to revoke or renounce gives rise to a claim for damages
for breach of K. Termination gives rise to monetary damages (not
specific performance).
i. RevokePrincipals decision to terminate the agency.
ii. RenounceAgents decision to terminate the agency.
BUSINESS ASSOCIATIONS FALL 2016 GADINIS

iii. An agency will not continue over a partys objection

leaving damages strictly to monetary not specific
performance.
c. Parties conception does not controlAgency relationships
can be implied, even when not explicitly agreed to. The existence
of an agency may be proved by an evaluation of the facts in each
particular situation. We can look at what the parties said, what
they did, how they acted, their course of dealing over time, and
even silence.
i. E.g. a bank assumes too much control under a K in a
debtor-creditor relationship
ii. Jenson Farms Co. v. Cargill, Inc. An agency is created
through a course of conduct where the facts, taken as a
whole, show that one party has manifested consent that
another party be its agent; the second party acts on behalf
of the first party; and the first party exercises control over
the second party.
1. Facts: Warren bought grain from local farmers. The
grain would be sold through grain exchange. Warren
applied for financing from Cargill & the ptys
entered into a security agreement providing that
would loan money for working capital to Warren.
After years of new agreements extending the credit
limit, and a lot of control on s part, Warren went
bankrupt owing $$$ to and to the s in the case.
s alleged that was jointly liable for Warrens debt
as it aced as principal for the grain elevator.
2. Issue: whether Cargill, by its course of dealing with
Warren, became liable as a principal on Ks made by
warren with s.
3. Held: Cargill acted in a way that implied consent:
Cargills approval required for mortgages or
dividends; Constant recommendations; Criticism
about finances, salaries, inventory; Financing all
warrens grain purchases. The point of the
relationship was better access to grain for Cargill
from Jenson Farms, they were not going to make
much from the loan, so this was more than a mere
loan from a bank. They exercised a lot of control.
d. Liability in Contract Who is bound?
i. To create an agency relationship, both parties must
manifest their intention to enter an agency relationship.
The manifestation does not need to be in writing, and it
doesnt have to be verbal. All that is required is that the
agent reasonably understands from the actions or
BUSINESS ASSOCIATIONS FALL 2016 GADINIS

speech of the principal that she has been authorized

to act on the principals behalf.
ii. Actual & Apparent Authority
1. Actual authority The scope of the actual authority
conferred on the agent is that which a reasonable
person in the position of A would infer from the
conduct of P.
a. Incidental authoritythe authority to do those
implementary steps that are ordinarily done in
connection with facilitating the authorized act.
2. Apparent authority The authority that a reasonable
third party would infer from the actions or
statements of P.
a. Apparent authority is in the nature of an
equitable remedy designed to prevent fraud or
unfairness to 3Ps who reasonably rely on Ps
actions/statements in dealing with A.
b. The authority granted to an agent to act on
behalf of the principal in order to effectuate the
principals objective, which may not be
expressly granted, but which is inferred from
the conduct of the principal and the agentja.
3. White v. Thomas In the absence of a principal
and any indicia that an agent has authority to
engage in a specific action on the principals behalf,
the agent does not have apparent authority to
engage in such action merely because the agent
asserts she has such authority.
a. Facts: White authorized Simpson, with a blank
check conferring POA, to buy 220 acres for up
to $250K except for 3 acres where the house
was. left on a trip before the sale, and no
other instructions were given. were the
successful bidders on the 3 acres where the
house was. Simpson bought all the land for
$327K (exceeded amount authorized) and
approached about buying some of the lands
surrounding the house & signed agreement to
buy the land and another agreement to sell to
s. Simpson told that she had POA to convey
the land but didnt ask to see it. But no POA
existed. When returned from the trip, he
repudiated Simpsons action. s brought suit
for specific performance.
b. Held: an agent doesnt have authority merely
because he asserts that he does. Without a
BUSINESS ASSOCIATIONS FALL 2016 GADINIS

principal and any indicia that an agent has

authority to engage in a specific action on the
principals behalf, the agent does not have
apparent authority to engage in such action
merely because the agent asserts she has such
authority. Simpson wasnt expressly authorized
to sell whites property. She was authorized only
to purchase the tract of land if she could do so
for less than $250K. She didnt have the
implied authority to K to sell a part of the
property, because that act was not necessary
to accomplish her assigned task of buying the
entire tract.
iii. Inherent Authority
1. Gallant Ins. Co. v. Isaac
e. Liability in Tort Who is responsible
i. Humble Oil & Refining Co. v. Martin
ii. Hoover v. Sun Oil Co.
iii. OConnor v. Uber
f. Liability in Tort under the apparent authority Doctrine
III. The Governance of Agency (The Agents Duties)
a. Nature of Agents fiduciary relationship
b. Agents duty of loyalty to the Principal
i. Tarnowski v. Resop
c. The trustees duty to Trust Beneficiaries
i. In re Gleeson
ii. Town & Country House v. Newbery