106 N.M. 237, 741 P.2d 840 (Ct.App.1987)
Synopsis: Certified trucker appealed decision rendered in the District Court ruling that it was principal of another trucker operating under certificate owned by trucker, and was therefore liable for debts incurred by operator.
-Dawn (D), a trucking corporation, was granted a ‘‘certificate of public convenience and necessity’’. Rainbow Oil field Trucking (D) contracted to use Dawn’s (D) certificate while delivering oil in Hobbs, New Mexico.
-Under the contract, Dawn (D) assumed complete control over Rainbow’s (D) operations in New Mexico. Dawn (D) was to collect all of Rainbow’s (D) receivables in Dawn’s (D) name, deduct fees and commissions, and pay Rainbow (D) the remainder.
-Rainbow (D) was to pay fuel and operating expenses. Dawn (D) was to supervise and control Rainbow’s (D) fuel usage.
-A side terminal management agreement granted Dawn (D) complete control over Rainbow’s (D) Hobbs terminal operation, but specified Rainbow (D) was not Dawn’s (D) agent and not authorized to incur liability for Dawn (D) except in the ordinary course of business relating to terminal management.
-The agreement classified Rainbow (D) as an independent contractor rather than Dawn’s (D) employee.
-Under the agreement, any claims against Rainbow (D) were to be defended, paid or reimbursed by Rainbow (D).
-While operating, Rainbow (D) hired Morris Oil (P) to install a bulk dispenser and supply diesel fuel. Rainbow (D) later went bankrupt, still owing Morris (P) $25,000, and suggested Morris (P) demand payment from Dawn (D), which still held $73,000 in receipts from Rainbow (D).
-Dawn (D) established an escrow account to pay Rainbow’s (D) debts, and convinced Morris (P) to suspend collection efforts, but when the account was depleted, Morris (P) was never paid from it. -Morris (P) sued both Rainbow (D) and Dawn (D), contending Dawn (D) was in fact Rainbow’s (D) employer and responsible for its debts. Rainbow (D) defaulted, but Dawn (D) defended, contending the contract explicitly made Rainbow (D) an independent contractor solely responsible for its own debts.
Issue: Did the district court err in finding liability based on a principal-agent relationship between the defendants?
Holding: Yes. Principals are liable for their agents contracts, even unauthorized ones, unless the third parties contracting with them knew they were unauthorized.
Rule: Principals are liable for their agents’ contracts, even unauthorized ones, unless the third parties contracting with them knew they were unauthorized.
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