Montana Reservoir & Irrigation Co. v. Utah Junk Co.
64 Utah 60, 228 P. 201 (1924)
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Rule of Law:
A principal's duty to provide notice of an agent's termination of authority extends to third parties whose officers have knowledge of the prior agency, even if that knowledge was acquired while those officers were acting on behalf of a different but closely related corporation.
Facts:
- Aaron Rosenblatt was a traveling agent for the Utah Junk Company, authorized to purchase metal junk.
- In his capacity as agent, Rosenblatt purchased junk from the Montana Power Company on behalf of the Utah Junk Company.
- The Montana Reservoir & Irrigation Company (plaintiff) is a subsidiary of the Montana Power Company, sharing offices and having interlocking corporate officers.
- In May 1917, the Utah Junk Company terminated Rosenblatt's agency but failed to provide effective notice of the termination to the Montana Power Company or its affiliates.
- In July 1917, Rosenblatt, representing himself as an agent for the Utah Junk Company, contracted to buy ten carloads of junk from the Montana Reservoir & Irrigation Company.
- The officers of the Montana Reservoir & Irrigation Company, relying on their knowledge of Rosenblatt's agency gained from prior dealings while acting as officers for Montana Power Company, believed he was still an agent.
- The junk was shipped to and received by the Utah Junk Company.
- The Utah Junk Company paid Rosenblatt directly for the junk, treating him as an independent trader, and did not pay the plaintiff.
Procedural Posture:
- The Montana Reservoir & Irrigation Company sued the Utah Junk Company in a district court (trial court) to recover the balance of a purchase price.
- The trial court entered a judgment in favor of the plaintiff.
- The Utah Junk Company (appellant) appealed the judgment to the Supreme Court of Utah.
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Issue:
Does a principal's failure to notify a third party of an agent's termination of authority bind the principal to a contract entered into by the former agent, when the third party's knowledge of the prior agency relationship was gained by its officers while acting for a different, but closely related, corporation?
Opinions:
Majority - Gideon, J.
Yes. A principal's failure to notify a third party of an agent's termination of authority binds the principal when the third party's officers relied on knowledge of the agency gained while acting for a closely related corporation. The court reasoned that knowledge imparted to corporate officers is knowledge of the corporation. Because the officers of the plaintiff company were the same individuals who had previously dealt with Rosenblatt as the Junk Company's agent while acting for the parent company, that knowledge is imputed to the plaintiff. The court found it would be illogical to estop the Junk Company from denying the agency when dealing with these individuals as officers of the parent company but not when dealing with them as officers of the subsidiary, especially given the common ownership and management.
Analysis:
This decision expands the doctrine of apparent authority and a principal's duty to notify third parties upon an agent's termination. It effectively pierces the corporate veil for the purposes of imputing knowledge, holding that notice must be effective for related corporate entities that share officers. The case establishes that knowledge gained by an individual in one corporate capacity can be relied upon by that same individual when acting in a different but related corporate capacity. This places a higher burden on principals to ensure notice of an agent's termination is broadly communicated to all affiliates of a business partner, not just the single entity with which they previously dealt.
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