Gay Jensen Farms Co. v. Cargill Inc. MN 1981
Facts: Defendant Cargill was a creditor who had loaned money to Warren, the debtor. The plaintiffs were farmers who sold their grain crops to Warren. Warren was a local firm that operated a grain elevator (a storage facility). Cargill is a large, worldwide dealer in grain. On Cargill’s view of the facts, Warren bought grain from the farmers and sold it to Cargill. On the farmers’ view of the facts, Warren bought grain as an agent for Cargill. The Court lists a number of factors that indicate Cargill’s control over Warren on p. 10 in the casebook.
Issue: Does Cargill, by its course of dealing with Warren, become liable as a principal on contracts made by Warren with plaintiffs?
Holding: The Court concludes that, on the facts of this case, there was sufficient evidence from which the jury could find that Cargill was the principal of Warren within the definitions of agency set forth in Restatement (Second) of Agency s. 1 and 14 O
-Professor disagrees with this holding, stating that there are more debtor/creditor factors present (see argument for no control below)
Reasoning: 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.
-When looking at the type of control that establishes agency, we are looking at control that goes to the heart of management (i.e. active management by the “controller”).
-Lenders can be difficult, when you borrow a lot of money from somebody you don’t get it for free. There is interest due and elaborate contractual agreements that will limit your ability to undergo certain transactions, from borrowing more money to spending money.
-More freedom when you borrow from 10,000 people as opposed to just one. The 10,000 don’t have as much of a stake in the loan so they won’t criticize you as much.
Argument for Control (agency relationship)
-Constant recommendations by telephone (not always implemented)
-Right of first refusal (management?)
-There are many commercial relationships where there is a right of first refusal but it does not amount to an agency.
-Determination that Warren needed “strong paternal guidance”
-Drafts/forms on which Cargill’s name was imprinted
Argument for No Control (debtor/creditor relationship)
Factors that are common among debtor/creditor relationships where there is not an agency relationship:
-Need approval before entering mortgages, purchasing stock, paying dividends
-Right of entry - periodic checks and audits
-Correspondence and criticism regarding finances, salaries, inventory
-Financing of all Warren’s purchases of grain and operating expenses
-Power to discontinue the financing of Warren’s operations