Friday, November 16, 2012

A. Gay Jenson Farms Co. v. Cargill, Inc. case brief

          A. Gay Jenson Farms Co. v. Cargill, Inc.

a.       FACTS: Plaintiffs entered into grain contracts with Warren Grain & Seed Co., which was financed and controlled by Cargill, Inc., a separate entity.
b.      Creating Agency Relationship
                                                              i.      Requires agreement, but not necessarily a contract.
                                                            ii.      Parties need not describe relationship as agency or intend legal consequences of agency relationship to follow.
                                                          iii.      May be proved by circumstantial evidence showing course of dealing.
1.      If proved by circumstantial evidence à principal must be shown to have consented to the agency since one cannot be the agent of another except by consent of the latter.
c.       Creditor/Debtor
                                                              i.      A creditor who assumes de facto control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business, regardless of the terms of their formal contract.
1.      Level of control signifies agency relationship.
                                                            ii.      “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.  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.”  Rest. (2d) of Agency § 14 O.
                                                          iii.      Factors showing Cargill’s control over Warren:
1.      Cargill’s constant recommendations to Warren by telephone;
2.      Cargill’s right of first refusal on grain;
3.      Warren’s inability to enter into mortgages, to purchase stock or to pay dividends without Cargill’s approval;
4.      Cargill’s right of entry onto Warren’s premises to carry on periodic checks and audits;
5.      Cargill’s correspondence and criticism regarding Warren’s finances, officers salaries and inventory;
6.      Cargill’s determination that Warren needed “strong paternal guidance”;
7.      Provision of drafts and forms to Warren upon which Cargill’s name was imprinted;
8.      Financing of all Warren’s purchases of grain and operating expenses; and
9.      Cargill’s power to discontinue the financing of Warren’s operations.
                                                          iv.      Factors indicate an agency relationship, not a creditor-debtor one.

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