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Law School Case Brief

A. Gay Jenson Farms Co. v. Cargill, Inc. - 309 N.W.2d 285, 1981 Minn. LEXIS 1380

Rule:

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

Facts:

A. Gay Jenson Farms Co., including 86 individual, partnership or corporate farmers, brought this action against defendant Cargill, Inc. (“Cargill”) and defendant Warren Grain & Seed Co. (“Warren”) to recover losses sustained when Warren defaulted on the contracts made with plaintiffs for the sale of grain. After a trial by jury, judgment was entered in favor of plaintiffs, and Cargill brought this appeal. 

Issue:

Did the district court err in entering a judgment in favor of the farmers?

Answer:

No

Conclusion:

The Court found that an agency relationship was established. First, 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. A creditor becomes a principal when he assumes de facto control over the conduct of his debtor, whatever the terms of the formal contract with his debtor may be. Here, the creditor was an active participant in the debtor's operations rather than simply a financier. The creditor and the debtor had a paternalist relationship, with the creditor making the key economic decisions and keeping the debtor in existence. Second, under the modern view adopted by the Court, since the farmers did not indicate to the creditor that the debtor had settled their accounts with them, the creditor, as principal, was not discharged from liability to the farmers by making a settlement payment to the debtor.

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