Friday, November 16, 2012

Watteau v. Fenwick case brief

Watteau v. Fenwick case brief summary

FACTS
Humble, prior owner, operated Fenwick’s tavern under Humble’s name and credit and purchased foods from Watteau without Fenwick’s express authority.  Fenwick prohibited Humble from buying goods for the tavern, except bottled ales and mineral water; Watteau was to provide all other goods.  Humble violated Fenwick’s prohibition by buying cigars and Bovril from Watteau.  When Humble was in absentia, Watteau sued Fenwick for the cost of the cigars and Bovril.
Actual Authority – None because Fenwick (principal) gave Humble (agent) specific instructions not to buy anything except bottled ales and mineral water.

Apparent Authority – None because there was no holding out by the principal (Fenwick).  Watteau did not know that Fenwick existed.

Inherent Authority – Humble had apparent authority.  Fenwick is liable.
Inherent Agency Power – “Inherent agency power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.”  Rest. (2d) of Agency § 8A.
a.       Gap filler.
b.      Places the loss on the enterprise that stands to benefit from the agency relationship.
RULEIf the agent commits an unauthorized action, and there is no actual, implied, or apparent authority, principal still may be liable for the loss based on the notion of inherent authority.
Undisclosed Principal
A third party is bound despite not knowing about principal.  Focus is on whether an agency relationship/authority existed between principal and agent.  If so, third party is bound.

 Exception – The third party may not be bound if agent made a misrepresentation.

A general agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account, if usual or necessary in such transactions, although forbidden by the principal to do them.”  Rest. (2d) of Agency § 194.
An undisclosed principal who entrusts an agent with the management of his business is subject to liability to third persons with whom the agent enters into transactions usual in such businesses and on the principal’s account, although contrary to the directions of the principal.”  Rest. (2d) of Agency § 195.

Narrower Rule in Third Restatement
§ 2.06 – Liability of Undisclosed Principal
“(1) An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.”  (emphasis added)
 “(2) An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.”
b.      More akin to estoppel than old inherent agency power.

Apparent Authority v. Inherent Authority
(Partially) disclosed principal à requisite manifestation by principal creates apparent authority.
 Undisclosed principal à no communication or manifestation of authority between principal and third party à inherent authority.

Policy Rationale – Undisclosed principal is cheapest cost avoider/in best position to avoid loss.  Cheaper for undisclosed principals to take precautions than to require all innocent third parties to do so.


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