Agency and Liability to Third Parties
1) Wiley Pete owns and operates Wiley’s Nature Reserve & Animal Park as a sole proprietorship. The park consists of 100 acres of wooded terrain filled with hiking trails and animal pens that he advertises as a “family-friendly learning adventure.” Wiley runs the park with the assistance of his older daughter, Petunia, and younger son, Peter. There are also a number of other seasonal employees used for ground maintenance and animal care. Ever since Wiley opened the park twenty years ago Petunia has been his right-hand woman. Wiley gave her power of attorney to sign legal documents on behalf of the park. Petunia was empowered to hire and fire employees, manage the payroll and finances, and conduct any marketing for the business. When Peter joined the business ten years ago he was given the job of chief animal wrangler and groundskeeper – a job he took over from Wiley. When he started, Peter was told that he had to run all purchases (animal food, fertilizer, etc.) through Petunia. After his first year on the job, Peter stopped going to Petunia for approval of these purchases and took care of them on his own, signing the company checks that paid for them. Petunia never said anything to Peter about this, but has never stopped him. It has always been Wiley’s intent for Petunia and Peter to take over the business as co-owners at the time of his death.
a. Explain the agency relationship (employee, independent contractor, fiduciary, principal/agent) between Wiley, Petunia, and Peter. Be sure to first define the agency relationship, apply the definition to the facts, and then state your conclusion based on the definition and facts.
b. Identify the forms of authority each of them operate under (contract, power of attorney, implied authority, agency by estoppel or ratification). Be sure to include the definition of that agency relationship and what facts you relied upon to reach your conclusion.
c. Two years ago Petunia fired Marcus Snively, who had been in charge of designing and purchasing pamphlets that the park would give to guests as educational tools. One week after being fired, Marcus approached the printer that the park always used for these pamphlets. Marcus had designed a pamphlet that included all sorts of incorrect information about the animals at the park, hoping that it would make the park ownership look foolish. Marcus ordered 10,000 of the pamphlets from the printer (as he had done in the past) and asked that the charge be applied to the park’s standing credit account with the printer. The printer, who didn’t know Marcus had been fired, obliged. When Petunia received the boxes of pamphlets the following week she called the printer and advised the printer that Marcus didn’t have permission to make the order. The printer refused to take the pamphlets back and demanded payment.
i. Does the printer have a right to demand payment under agency law? Explain the legal principles you used to reach your conclusion, and include a discussion of when a principal is liable for unauthorized acts of agents, and whether any liability can be based on principles of tort law.
ii. What should a business do to prevent this sort of thing from happening?
iii. Assume Marcus was upset with the park but had NOT been fired when he enacted his plan. Since Marcus was still employed at the park at the time he ordered the faulty pamphlets, what duty or duties of an agent to a principal, if any, would he have violated? Identify the duty (loyalty, notification, performance, obedience, accounting) and explain how it was violated using the facts provided.
d. Over the last several years Wiley’s mental health has slowly taken a turn for the worse. Wiley has remained the owner of the park, but has largely stepped aside in his role as chief executive officer. Recently, Wiley became suspicious that Petunia was embezzling funds from the park. During a period of lucidity, he created a durable power of attorney that gave Peter the right to sign legal documents on behalf of the park and otherwise make management decisions. This durable power of attorney was to go into effect should a doctor deem Wiley’s mental incapacitation permanent. Last week Wiley’s mental capacity fell into a permanent state of non-communication, and he was committed to a permanent care hospital after a physical by a physician who determined that he was unable to care for himself or capable of making any decisions. Explain what, if any, power exists for Petunia and Peter by explaining the difference between a power of attorney and a durable power of attorney, and reach a conclusion as to who should now be in control of the business.
2) Mareena Estevez owns Sweet Smelly Goodness, Inc., a company that manufactures aerosol home air fresheners for sale at major department stores. For the holiday season, Mareena purchased floor space at the Dayton Mall Macy’s store, set up a small stand to advertise and display her products, and hired Dudley Dipstick to engage Macy’s customers and sell her product. Dudley was hired to work the stand from noon until close from October 1 until December 24. He dressed in his own clothing, but wore a name tag that included his name and the Sweet Smelly Goodness emblem. He clocked in and out using Macy’s computer system. The only training he was given was a small booklet about the air fresheners and the instruction to “convince people how wonderful this product is.” About two weeks into the job, Dudley took it upon himself to open one of the cans and start spraying people as they walked by. Shortly after beginning this strategy, Dudley sprayed the air freshener at a customer, Greti Grifter, who had an immediate and painful allergic reaction.
a. Based on principles of agency law, discuss who would bear any liability for Greti’s injuries? First discuss the legal relationship between Dudley and Macy’s, and between Dudley and Sweet Smelly Goodness, Inc., then discuss under what conditions the principal can be liable for acts of the agent, then apply these principles to Dudley’s actions and reach a conclusion.
b. If Greti sues Dudley, personally, explain what defenses Dudley can use to argue that the principal is liable for his actions?
c. If the customer succeeds in a lawsuit against Sweet Smelly Goodness, Inc., and has to pay Greti a large jury verdict for compensatory damages, under what circumstances could Sweet Smelly Goodness have the legal right to seek reimbursement from Dudley personally? Why or why not?
3) Luther Ringer, operates a successful bell manufacturing business, Ringer’s Zingers, Inc. Business has been so good that he recently hired a commissioned salesman, Rufus, to sell the bells for him. Rufus had long been employed by one of Luther’s competitors, Bevins Bells (http://bevinbells.com/) as a salesman, so he knew the market well. Analyze the following scenarios and determine if they violate any duties owed between principals and agents. Be sure to describe the duty and explain how it was violated.
a. Luther is a shrewd businessman and wanted to incentivize Rufus to sell as many bells as possible. Because of this, Luther created an employment contract that only paid Rufus if he sold more than a thousand bells a month. If he didn’t sell a thousand bells, he didn’t get paid. What duty, if any, is violated and why?
b. If Rufus doesn’t feel like he’s been paid a proper commission by Luther what remedy, if any, does he have?
c. In an effort to increase sales, Rufus purchased a number of Cincinnati Bengals tickets at $150 per ticket to give to some prospective customers. When Rufus told Luther about the purchase in order to obtain reimbursement, Luther said he would only pay for those tickets that generated sales. Rufus hadn’t kept track which tickets generated any sales. Should Rufus be compensated for his purchase? What duties, if any, were violated and why?
d. A potential customer told Rufus that they would love to purchase 10,000 bells from Luther (a huge order), but that they would only do so if Luther made a minor modification to the design. Without consulting Luther, Rufus told the customer that Ringer’s Zingers would never modify their design. Rufus then contacted his old employer, Bevins Bells, (who he knew would sell the modified bell) and closed a deal for them with the customer in return for a tidy commission. What duties, if any, were violated and why?
e. Rufus closed a deal with an internet retailer, Big Ten Sports Fan Fun (BTSFF), selling them 10,000 bells for each Big Ten school, with school emblem decals, which were a best seller to students and alumni who like to take the bells to football games and make lots of noise in the stands. BTSFF was so appreciative of the deal that they gifted Rufus and Ringer’s Zingers with 4 tickets to the Big Ten championship game, the Rose Bowl, and the BCS Bowl. Instead of reporting the gift to Luther, Rufus decided to keep them. Rufus sold the tickets to two of the games and kept the BCS tickets. What remedy, if any, might Luther have to recover the tickets and/or the profits Rufus made from selling them?
4) Simon Phung owns a company that produces chemical compounds, ChemCorp, and makes money by selling these compounds to goods manufacturers like Procter & Gamble. ChemCorp hires agents to purchase the base chemicals it combines into the compounds at its plant in West Carrolton. Depending on the types of base chemicals it needs, ChemCorp uses different agents and contracts with different suppliers. For safe, completely non-toxic chemicals ChemCorp includes its name on the purchase contracts and their agent, Sheena Smiley, makes it known that she is working for ChemCorp. However, for dangerous chemicals ChemCorp uses an outside agent, Boris Clandisteen to both purchase and arrange for transport of the chemical to ChemCorp’s West Carrolton facility. At no point during the purchase or transport of the dangerous chemicals is ChemCorp’s name used or otherwise disclosed by Boris, though it is made clear that Boris is only an agent, acting on behalf of his superiors.
a. If Sheena or Boris made a unilateral mistake regarding scheduling, which causes a vendor to sue for its lost profits caused directly by the delay, who is liable for these damages? Be sure to discuss the difference between a disclosed and undisclosed agent, and the principal’s rights and remedies against its agents.
b. Boris misrepresents the danger in transporting the chemicals to the delivery company that he contracts with to transport the chemicals to ChemCorp, in order to secure a better price. This causes the transport company to not take precautionary measures to avoid certain roadway hazards, resulting in a huge explosion when the delivery truck drives over a big pothole. Can ChemCorp be held responsible for the tort committed by Boris? Be sure to discuss the principles of tort liability and the agency relationship including the legal theory of “Respondeat Superior”.
5) For each of the following circumstances imagine that you are the principal. Identify and explain what method or methods of agency termination discussed in Chapter 20 that you would use to terminate the contract in each circumstance. Explain why.
a. You run a boutique clothing shop where you make and sell your own products. There is an upcoming fashion expo at the Dayton Convention Center and you hire a marketing firm to put together and staff a booth for the expo to sell your products. After the show, what action, if any, must be taken to terminate the relationship?
b. You own and operate a successful tavern (bar/restaurant). Your tavern is famous for it’s Wicked Wizzer Wing Sauce and you bottle some of it each month for sale at the restaurant. The sauce is quite popular, bringing in good profits, so you decide to hire an independent contractor, Damian, to approach local food and beverage stores and to enter into contracts to stock and sell your sauce in their stores. When he obtains no contracts in the first 6 weeks, what action, if any must you take to terminate the relationship with Damian?
6) Suzy Sawdust owns a general contracting business that regularly performs remodeling work for local homes and businesses. She owns the vehicles and tools used for the work. The vehicles are all clearly marked with her business name, Build-It-Big, Inc. and the business phone number. Suzy hires her workers on a temporary, or per-job basis. The only permanent employee she has is a job site manager, Ron Maroon, who runs each project, is in charge of on-site decisions, and drives a company van. On his way in to a particular job site Ron received a call from Tom, an electrician they often used as a contracted worker. Tom’s car broke down and he needed a ride to the job site. Ron was driving by his place anyway, so he picked Tom up and took him in. Throughout the course of the morning Tom realized that Ron was having an allergic reaction to something at the job site causing him to constantly sneeze. Ron’s condition was seriously slowing down their progress, to the point where Tom was worried they wouldn’t get the job done in time. So Tom took it upon himself to take the company van to the local drugstore. It was only five minutes away, so Tom just took the van (the keys were still in it) without asking permission. Tom figured Suzy would want Ron feeling better so that they could get the job done in time. There would be a financial penalty if the contract was not completed by the end of the day, resulting in lower pay for everyone involved. Since Tom didn’t want to be gone very long, he drove as quickly as he was able. Unfortunately, Tom misjudged a stoplight, entered an intersection on red, and t-boned another vehicle. The driver of that vehicle, Bill, was seriously injured.
a. Discuss what type of agency relationship exists between Tom and Build-It-Big. Is Tom an employee or an independent contractor? Be sure to define both terms and explain what facts lead you to conclude Tom’s legal status, using the criteria outlined in your text.
b. Who is responsible for the damages incurred in the accident when Tom caused a wreck while driving the company van? Be sure to discuss the legal principles that would cause a principal to be responsible for the acts of its agents, and apply ALL elements listed in your text.
c. Would the application of liability be any different if Tom was running to Home Depot to pick up some electrical supplies for the job site? Why or why not?
d. Would the application of liability be any different if Tom had taken the van in a fit of jealous rage to run over his no-good, cheating wife, Brunhilde? Why or why not?