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?
QUESTIONS CONTINUE UP TO NO. 6