Tag: agency law

Apparent Agency Binds Roofing Company to Acts of Third-Party Marketing Firm; Liable Under Illinois Wage Act – IL Court

In Thomas v. Weatherguard Construction Company, 2015 IL App (1st) 142785, the First District provides a thorough analysis of Illinois agency law as it applies to breach of contract claims for unpaid commissions. The court also discusses the parameters of the Illinois Wage Payment and Collection Act (“Wage Act”) and the universe of damages available under it.

The Plaintiff sued to recover about $50K in commissions from a company that repairs weather-damaged homes for customers signed up by the plaintiff.

The arrangement involved plaintiff soliciting business for the defendant by targeting homeowners who suffered weather damage to their homes. Once the homeowner’s insurer approved the repair work, defendant would do the repairs and get paid by the homeowner’s insurer.  The defendant would then pay plaintiff a 20% commission based on the total repair contract price on all deals originated by the plaintiff.

At trial, the defendant argued that plaintiff wasn’t its employee.  It claimed the plaintiff was employed by a third-party marketing company whom defendant contracted with to solicit repair orders for the defendant.

The trial court entered a money judgment for the plaintiff for less than $10,000 and denied plaintiff’s claims for attorneys’ fees under the Wage Act.  Both sides appealed.

Affirming, the appeals court discussed agency law, the elements of an enforceable oral contract, and recoverable damages under the Wage Act.

Agency Law Analysis

Under the apparent agency rule, a principal (here, the defendant) is bound by the authority it appears to give an agent.   Once a principal creates an appearance of authority, he cannot later deny that authority to an innocent third party who relies on the appearance of authority.

The apparent agency claimant must show (1) the principal acted in a manner that would lead a reasonable person to believe the individual at fault was an employee or agent of the principal; (2) the principal had knowledge of or acquiesced in the agent’s acts; (3) the injured party (here, the plaintiff) acted in reliance on the principal’s conduct.  But, someone dealing with an agent has to exercise reasonable diligence and prudence in determining the reach of an agent’s authority.  (¶¶ 48-49, 51)

Here, there were multiple earmarks of authority flowing from the defendant to the marketing company who hired the plaintiff.  The marketing firm used the defendant’s uniforms, logo, business cards, and shared defendant’s office space and staff.  Viewing these factors holistically, the First District agreed with the trial court that it was reasonable for the plaintiff to assume the marketing firm was affiliated with defendant and was authorized to hire the plaintiff on defendant’s behalf.  (¶ 50)

Breach of Oral Contract

Rejecting the defendant’s claim that the plaintiff’s commission contract was too uncertain, the court found there was an enforceable oral contract even though certain price terms were unclear.  An oral contract’s existence and terms are questions of fact and a trial court’s determination that an oral contract does or doesn’t exist is entitled to deference by the appeals court.  In addition, damages are an essential element of a breach of contract claim the failure to prove damages spells defeat for the breach of contract plaintiff.

The Court agreed with the trial court that plaintiff sufficiently established an oral contract for defendant to pay plaintiff a 20% commission on the net proceeds (not gross) earned by the defendant on a given home repair job. (¶¶ 55-59)

The Wage Act

Part II of this post examines the court’s analysis of whether the Wage Act’s 2011 amendments that provide for attorneys’ fees and interest provisions apply retroactively (plaintiff filed suit in 2007).

Afterwords:

Agency law issues come up all the time in my practice.  In the breach of contract setting, the key question usually is whether an individual or entity has actual or apparent authority to act on behalf of a solvent or “deeper pocketed” defendant (usually a corporation or LLC).  Cases like Thomas show how risky it is for defendants to allow unrelated third parties to use a corporate defendant’s trade dress (logo, e.g.), facilities, staff or name on marketing materials.

A clear lesson from the case is that if a company does let an intermediary use the company’s brand and brand trappings, the company should at least have indemnification and hold-harmless agreements in place so the company has some recourse against the middleman if a plaintiff sues the company for the middleman’s conduct.

 

Commercial Frustration and the Impossibility Defense: The Case of the Missing Bentley

Illinois agency rules, consumer fraud law and the commercial frustration doctrine are the focal points of Tahir v. DMI, 2014 WL 985351 (N.D. Ill. 2014), a case involving the purchase of an undelivered Bentley.

The plaintiff sued multiple car dealer defendants for breach of contract and consumer fraud after he paid over $100,000 for a car he never received.  The companies and individuals involved in the sale of the car operated a complex web of interconnected business entities that made it difficult to properly identify the selling defendants. 

The defendants all moved for summary judgment.

Result: Judgment for plaintiff on breach of contract claim against the dealership; Judgment for management company on plaintiff’s consumer fraud count.  

Basis/Reasoning:

The Court found for the plaintiff on its breach of contract claim versus the dealership based on Illinois agency principles governing liability to third parties. 

The test for agency is whether the principal can control the manner and method of the agent’s work such that the agent can affect the principal’s legal relationship.  (*5). 

Where a principal’s identity is disclosed to a third party, the disclosed principal is liable to the third party for a breach of contract while the agent is not.

Where an agent enters into a contract for an undisclosed principal, the agent is personally liable on the contract. 

Where a plaintiff gets a money judgment against an agent and an undisclosed principal, the plaintiff must choose which party to take the judgment against. (*5-6).

Here, both undisclosed and disclosed principal rules applied.  The dealership was managed by another entity under a written management agreement.  That agreement was cryptic concerning each parties’ duties in relation to the other. 

Based on the agreement’s wording, it was equally plausible that the car dealer controlled the manager and vice versa.

Because of this uncertainty, the Court found the dealer was liable under the car purchase contract as either a disclosed principal of the manager or as an agent for an undisclosed principal – also the manager.  Either way, plaintiff stated a breach of contract claim against the dealer. (*5).

The Court rejected the dealer defendant’s impossibility and commercial frustration defenses that blamed another dealer for not delivering the car. 

The impossibility defense applies where the (1) the impossibility was not and could not have been anticipated by the contracting parties, (2) the party claiming impossibility didn’t contribute to it, and (3) exhausted all possible alternatives to permit performance. 

Commercial frustration applies where (1) the frustrating  event wasn’t foreseeable and (2) the value of performance has been practically destroyed by the frustrating event.  (*6).  

Rejecting the defenses, the Court found that the manager’s default under the management agreement was clearly foreseeable as the agreement specified respective default and remedy provisions. 

The dealership also failed to show it exhausted all attempts at performance, such as by buying the car itself. The dealership offered no evidence that it lacked the resources to buy and deliver the car to the plaintiff. (*6).

The Court ruled against plaintiff on its consumer fraud claim against the manager.  An Illinois consumer fraud plaintiff must show (1) a deceptive act or practice, (2) defendant’s intent that the plaintiff rely on the deception, and (3) occurrence of the deception in trade or commerce.  (*8). 

The Court found that the plaintiff failed to demonstrate a deceptive act by the manager such as its intent to take plaintiff’s money without delivering the car.  At most, the Court ruled, the plaintiff alleged a breach of contract claim; not consumer fraud.  (*8).

Take-aways:

Many businesses operate through a byzantine web of corporate parents, subsidiaries, holding companies, trade names and “d/b/a”s (doing business as).  The plaintiff wisely named all possible entity permutations as defendants and let them sort out the responsible parties through motion practice.

The case also shows how difficult it is to prevail on an impossibility or commercial frustration defense – especially where the parties are sophisticated commercial entities.