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Agency & Partnership The Law of Agency • 3 kinds of agency costs (all ultimately born by the principal) • monitoring - cost of principal to ensure agent does its job • bonding - costs agents incur in limiting their ability to hurt the principal or to prove loyalty • residual - divergence of interest even after bonding and monitoring costs are incurred Efficiency • • Pareto: efficient when no one can be made better off without making anyone else worse off • Kaldor-Hicks: efficient if total gains are big enough to theoretically fully compensate all losers • Restatement (Third) Agency Section 1.01 defines “agency” • typically formed under an express contract, whether written or verbal, but can be formed when parties did not have that intent per se • the core is that A can bind P to T • arises out of consent • therefore either party can terminate it at any time • Types of Agency • scope • special agents are limited to a single act or transaction • general agents are empowered for a series of acts or transactions • disclosure to T • P can be disclosed, undisclosed, or partially disclosed (unidentified) • right to control • employee/servant or independent contractor • Agency relationships are not specifically enforceable. • Jensen Farms Co. v. Cargill • held that Warren was Cargillʼs agent, so Cargill was liable • Cargill was essentially operating Warren as an undercapitalized subsidiary, not acting as a lender to Warren 3 elements of agency: 1) manifestation; 2) control; and 3) consent • • elusive distinction between agency and general creditor-debtor relationship in this case was motivated by a desire not to over-generalize based upon the ability to control and thereby chill the credit markets pp. 20-21: list of nine factors indicating an agency relationship • • Liability in Contract • actual authority (RS3 Section 2.01) • that which a reasonable person in Aʼs position would infer from Pʼs conduct • express if explicit communication • implied (or incidental) if Aʼs actions... [continues]

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