Business Associations, Pages 14–19

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

Supreme Court of Minnesota, 1981

Facts:

Defendant Warren, a company running a grain elevator, was in financial trouble and applied for financing from defendant Cargill. Cargill agreed to loan Warren up to $175,000 to pay its bills. In return, Warren agreed to give its sales proceeds to Cargill, Cargill was made its grain agent with the Commodity Credit Corporation, and Cargill was given a right of first refusal to purchase market grain sold by Warren.

A few years later, Warren's credit line was extended to $300,000 and Cargill began to keep the books for Warren. Warren also agreed not to spend over $5,000 on improvements nor to take on another's debt or sell stock without Cargill's permission. As time went on, Cargill would tell Warren to make improvements or to act as its agent for new types of plants.

Cargill increased Warren's limit to $1.25 million, while Cargill ended up sending 90% of its cash grain to Cargill. Warren continued to go further into debt, and Cargill asserted more rights to the use of the money. Finally, it was revealed that Warren was $4 million in debt and falsifying documents to mislead Cargill. It ceased operation and ended $3.6 million in debt to Cargill and $2 million in debt to plaintiffs. Plaintiffs sued defendants for their money.

Procedural History:

After a jury trial, judgment was entered for plaintiffs.

Issue:

Did Cargill become liable as a principal on Warren's contracts with plaintiffs?

Rules:

  • LexisNexis IconGoogle Scholar LogoPage 16–17

    Agency is the fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.

  • Google Scholar LogoPage 17, Bottom

    The point at which the creditor becomes a principal is that at which he assumes de facto control over the conduct of his debtor

Reasoning:

By having Warren implement its recommendations, Cargill manifested its consent that Warren would be its agent. Warren acted on Cargill's behalf in getting grain while being entirely funded by Cargill. An agency relationship was established by Cargill's interference with the internal affairs of Warren, demonstrating its de facto control.

Just taking on another's debt and holding veto power over its acts is not agency, but taking over the management of a debtor's business and directing what contracts may be made is.

Warren could not just have been a supplier for Cargill because Warren had no independent business apart from Cargill. Cargill was financing all parts of Warren's operation, and Warren was selling almost all of its grain to Cargill.

Holding:

Yes, Cargill became Warren's principal. Affirmed.