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Law School Case Brief

Morris Oil Co. v. Rainbow Oilfield Trucking Inc., - 1987-NMCA-104, 106 N.M. 237, 741 P.2d 840

Rule:

The principles of agency apply where an undisclosed principal entrusts an agent with the management of the undisclosed principal's business. The undisclosed principal is subject to liability to third parties with whom the agent contracts where such transactions are usual in the business conducted by the agent, even if the contract is contrary to the express directions of the principal. 

Facts:

The old and new trucking companies contracted for the new company to use the old company's certificate of public convenience and necessity in the operation of a business. The old company collected all charges due for the new company's transportation, deducted a clerical fee and a percent of profits, and remitted the balance to the new company. It was responsible for paying its operating expenses, but all operations utilizing fuel were under the old company's control, and all billing was under its name. The new company filed for bankruptcy. The old company set up an escrow account and assured the oil company that it would be paid. Instead, the old company paid other creditors and took an administrative fee. The trial court found for the oil company in its action to recover its indebtedness. The court affirmed and held that a principal could be held liable for the unauthorized acts of its agent if the transaction was ratified after knowledge was acquired of the material facts concerning the transaction. Where the old company retained the benefits of its business relations with the new company with knowledge of the material facts, the old company ratified the debt to the oil company.

Issue:

Did the Trial Court err in finding liability based on a principal-agent relationship between the defendants?

Answer:

No.

Conclusion:

It is well established that an agent for an undisclosed principal subjects the principal to liability for acts done on his account if they are usual or necessary in such transactions. This is true even if the principal has previously forbidden the agent to incur such debts so long as the transaction is in the usual course of business engaged in by the agent. The indebtedness in the instant case is squarely governed by well-established principles of agency where an undisclosed principal entrusts the agent with the management of his business. The undisclosed principal is subject to liability to third parties with whom the agent contracts where such transactions are usual in the business conducted by the agent, even if the contract is contrary to the express directions of the principal. 

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