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

Supreme Court of Minnesota · 1981 · Corporations

309 N.W.2d 285 (1981)

Updated August 22, 2026

CorporationsAgencyPrincipal-Agent LiabilityCreditor-Debtor Controlactual agencycreditor as principalde facto controlRestatement Second of Agency section 1

Facts

Cargill financed Warren's grain elevator business through a series of expanding credit agreements and exercised extensive influence over Warren's operations, including requiring financial reports, approving certain major business decisions, conducting audits, issuing drafts bearing Cargill's name, and making constant recommendations about operations and finances. Warren sold almost all of its market grain to Cargill, and Cargill financed all of Warren's grain purchases and operating expenses. As Warren's debt grew, Cargill increased its involvement to daily contacts and day-to-day oversight, and in Warren's final days sent an official to supervise the elevator's funds and operations. After Warren collapsed owing plaintiffs about $2 million on grain contracts, plaintiffs claimed Cargill was liable as Warren's principal.

Issue

Whether Cargill, by its course of dealing with Warren, became Warren's principal and therefore liable on contracts Warren made with farmers in the ordinary course of business. Also, if Cargill was a principal, whether it could avoid liability by claiming it was undisclosed and had already paid or settled with Warren.

Rule

Agency exists when one person manifests consent that another shall act on the former's behalf and subject to the former's control, and the other consents so to act. A creditor who merely has veto rights does not become a principal, but a creditor who assumes de facto control over the debtor's business becomes a principal liable for obligations thereafter incurred in the normal course of business. An undisclosed principal is not discharged from liability to the third party by payment to or settlement with the agent unless the principal reasonably relied on conduct of the third party, not induced by the agent's misrepresentations, indicating that the agent had settled the account.

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In Sioux Falls, Prairie Crest Processing advanced all operating funds to Red Willow Feed House under an open credit arrangement. Prairie Crest required weekly financial reports, conducted regular audits, approved any capital expense over $7,500, instructed Red Willow to reduce inventory and cut officer draws, supplied payment forms bearing Prairie Crest’s name, and called daily about cash use; Red Willow bought livestock feed ingredients almost entirely for resale to Prairie Crest and later defaulted on contracts with local sellers.

If the sellers sue Prairie Crest on Red Willow’s contracts, which argument best supports holding Prairie Crest liable as a principal?

Explanation. Agency may be proved by circumstantial evidence showing consent, action on behalf of another, and control. A creditor that merely protects its loan is not a principal, but a creditor that assumes de facto control over the debtor’s business may become a principal liable for obligations incurred thereafter in the normal course of business. The combination of total financing, operational directives, audits, approval rights, daily involvement, and use of forms bearing the financier’s name supports de facto control.