Business Associations

Want to facilitate collective action in creating wealth

Pro: Pooling resources--it is more effeicition to organize complex tasks w/in a hierarchical organization than in market. Helps to centralize information and expertise into a single market. Reduces transaction costs. Cons: it reduces transaction costs but does so at the at the risk of increasing agency costs. Much of corporation law is aimed at decreasing agency costs.

Monitoring costs: costs to put systems in place to determine whether agents are being loya to your interests. Bonding costs: costs agents expende to ensure owerns of agents' reliability. Residual costs: costs that arise from the differences of interest after monitoring and bonding are incurred.

1) information asymmetry; 2) externalities--costs getting dumped onto third parties; 3) transaction costs; 4) agency costs.

Pareto efficiency: when no reallocation of resources can make at least on person better off w/o making at least one person worse off. Unrealisic--even when both parties to tranxaction gain, third parties lose. Kaldor-Hicks efficiency: If at least one party would gain from it after all those who suffered a loss as a result of the transaction or policy were fully compensated (AKA, transactiom ust lead to a potential improvement, if the ganiers were to actually make the losers whole). In economic terms, transaction is efficient if the aggregate monetary gains to the winners exceed the aggregate monetary losses to the losers.

1) A principal manifests assent to antoher person (agent) that the agent shall, 2) act on the principal's behalf and subject to the princpal's control, and 3) the agent manifessts assent or otherwise consents so to act. need all three elments to have a P-A relationship

The A has a fiduciary relationship to the P, meaning the aim is to advance the purposes of the principal's. The agency relationship creates a duty of care (i.e., don't be negligent) and a duty of loyalty (be aware of COIs and try to avoid them), and duty of obedience (must obey P's commands, with some flexibility) in the A towards the P.

NOT NECESSARY! If all three requirements are met, a P-A relationship is created, no matter how the relationship is chraacterized in an agreement between the parties. Assent to a P-A relationship can be written, spken or thorugh other conduct.

Special agent--agency limited to a signle act or transaction; general agent--agency contemplates a serious of acts or transactions; employee as agenct--principal has a right under deal with the agent to control the way in which the agent goes about her task; Independent contractor--when agent is professional who is bound to provide indpendent judgment ro when it is an established business that does not agree to minute control.

1) Actual Agency/Authority; 2) Apparent Authority; 3) Inherent Authority.

May be express or implied. Examines the relationship bertween the P and the A and asks: did the A reasonably believe they were acting withing their authority? Rule: Scope of actual authority conferred on A is that which a reasonable person in the position of A would infer form the conduct of P. Includes incidental authority: the authority to do those implementary steps that are ordinarily done in cnonection with facilitating the authorized act.

This issue arises when somebody did something they weren't supporsed to, and the question is: who bears the risk of loss for the mistake? P or A? Asks: What is reasonable in the mind of the third party--did the third party reaosnable believe the A was acting on behalf of the P based on something the P did? RULE: an agent acts with AA when 1) the principal manifest such atuhority to the third person and 2) the third person reasonably relies on that manifestation. True even if, unbeknownst to the third party, P had explicitly limited the authority of A in a way that precluded A from engaging in that action.

Can an agent have enough inherent authority so that the P is bound? Gives a general agent the power to bind a principal, whether disclosed or undisclosed, to an unauthorized K as long as a general agent would ordinarily have the power to enter such a K and the third party does not know that matters stand differently. No manifestation from the P is needed. This was invented as a way to put the burden on the P, because they are in the best position to avoid this situation. Good example is a general manager of a store--have so much authority of some type it is unnecessary to consdier whether some action falls w/in their actual or apparent authority.

Disclosed: Third parties transacting with teh agent understands the A is acting on behalf of a particular P. Undisclosed: third party unwaware there is a P and thinks the A is the P herself. Partially disclosed: Third party is aware they are dealing with an A, but do not know who exactly the P is.

Cargill can be liable for the third parties because all three elements of agency could be found in the particular circumstances of this case. By directing Warren to implement its recommendations, Cargill manifested its consent that Warren would be its agent. Warren acted on Cargill's behalf in procuring grain for Cargill as the part of its normal operations which were totally financed by Cargill. Cargill's control over Warren is found in a number of factors: Warren needed Cargill’s permission to make improvements, Cargill had right of first refusal on Warren’s grain, Cargill called Warren daily to ask about its finances, Warren used Cargill forms and drafts with Cargill’s name on them in its dealings with farmers (professor thinks this last fact is particularly important). Although some of these elements exist in an ordinary debtor-creditor relationship, the totality of circumstances is sufficient to find that an agency relationship existed. Theory could be either actual authority or apparent authority--Cargill's names on Warren's checks to farmers and on letterhead.