Frontier Leasing Corp Problem Case

Frontier Leasing Corp Problem Case

Frontier Leasing Corp

In January 2004, Royal Links USA solicited Dave Fleming, golf professional and director of golf for Links Engineering, doing business as Bluff Creek Golf Course, to purchase a non-motorized beverage cart. Royal Links told Fleming that advertising revenue from the beverage cart would cover Bluff Creek’s monthly lease expenses for the cart. On January 21, Fleming, on behalf of Bluff Creek, applied for financing for the beverage cart and signed a Royal Links USA credit application. Royal Links sent Bluff Creek’s credit application to C&J Leasing Corp., which approved Bluff Creek for credit. In February 2004, Fleming and C&J Leasing signed a lease agreement for the beverage cart. In 2005, Bluff Creek defaulted on the lease payments. C&J Leasing sent a default letter to Bluff Creek stating that Bluff

Creek could correct the default by paying $1,322. Otherwise, C&J Leasing would require payment of the entire balance of $14,636, and Bluff Creek would have to return the equipment. Upon receiving this letter, the managing owner of Bluff Creek, Lance Clute, called C&J Leasing and learned of the lease

agreement signed by Fleming. Clute requested a copy of the lease, and upon its receipt, he stopped all payments on the cart. Clute communicated to C&J Leasing that he wanted the beverage cart removed from his property. Clute submitted an affidavit stating Fleming did not have authorization to enter into financing agreements. Nonetheless, Bluff Creek had made some payments on the cart lease to C&J Leasing prior to Clute learning about the lease. Bluff Creek was sued for breach of contract. The district court issued a summary judgment that Fleming had authority to

bind Bluff Creek on the contract and that Bluff Creek was liable to the lessor, Frontier Leasing Corporation, which had acquired from C&J Leasing the rights to collect on the lease. The Iowa Court of Appeals reversed, and Frontier Leasing appealed to the Iowa Supreme Court.

Ternus, Chief Justice An agency relationship can be established through the agent’s actual or apparent authority to act on behalf of the principal. Actual authority to act is created when a principal intention-ally confers authority on the agent either by writing or through other conduct which, reasonably interpreted, allows the agent to

believe that he has the power to act. Actual authority includes both express and implied authority. Express authority is derived from specific instructions by the principal in setting out duties, while implied authority is actual authority circumstantially proved. Thus, actual authority examines the principal’s communications to the agent. Restatement (Third) of Agency § 2.01 (2006). Apparent authority is authority the principal has knowingly

permitted or held the agent out as possessing. Apparent authority focuses on the principal’s communications to the third party. Restatement (Third) of Agency §§ 2.03, 3.03. In other words, apparent authority must be determined by what the principal does, rather than by any acts of the agent. A principal may also be liable under the doctrines of estoppel

and ratification. Under the doctrine of estoppel, the principal is liable if he (1) causes a third party to believe an agent has the authority to act, or (2) has notice that a third party believes an agent has the authority and does not take steps to notify the third party of the lack of authority. Restatement (Third) of Agency § 2.05. Moreover, based on principles of ratification, a principal may be liable when he knowingly accepts the benefits of a transaction entered into by one of his agents. The district court based its ruling that Fleming had actual

and apparent authority to enter into the lease on behalf of Bluff Creek on an affidavit submitted by the director and owner of Bluff Creek, Lance Clute. Clute stated in his affidavit that Fleming was in charge of the day-to-day operations of the golf course, Clute was aware of the existence of the beverage cart and did not disavow the transaction, and Bluff Creek made payments on the cart from August 2004 through March 2005. The district court noted that Bluff Creek did not provide an affidavit from Fleming confirming the testimony of Clute. While these facts do support a finding of an agency relationship, an examination of Clute’s entire affidavit could also cause one to conclude that Fleming did not have actual or apparent authority to enter into the lease and that Clute did not ratify the transaction or act in any way that would estop Bluff Creek from rejecting the transaction. In particular, Clute’s affidavit refutes the existence of actual authority with Clute’s statement that Fleming was not authorized to enter into any financing agreements or transactions for the purchase, lease, or financing of capital assets like

the beverage cart, especially given the lease’s hefty amount of $19,000. Clute’s affidavit refutes the existence of apparent authority with the statement that it is customary in the golf industry to hire a PGA golf professional to manage the day-to-day operations of a golf course, and vendors are aware that such professionals do not have authority to enter into the type of transaction at issue here. Clute’s affidavit also refutes that Bluff Creek is estopped from rejecting the transaction and that Bluff Creek ratified the lease. It does so with Clute’s explanation that, when he saw the cart, he thought it was an “even trade for advertisement” such as Bluff Creek[s]’ practice with scorecard advertising. Clute stated that with scorecard advertisements, Bluff Creek is given the scorecards for free in exchange for the advertisements on the cards. Clute’s affidavit also refutes the doctrines of estoppel and ratification with its statements that he first learned of the lease through a collection letter that was received when Fleming was no longer employed with Bluff Creek, that he immediately requested a copy of the lease when it could not be found in Bluff Creek’s records, that he made the cart available for repossession after determining that the lease was a “scam,” and that the cart “to this day . . . sits idle in [Bluff Creek’s] garage taking up space.” Finally, while Bluff Creek does not submit an affidavit from Fleming supporting Clute’s affidavit testimony, a jury nevertheless could believe Clute, finding in Bluff Creek’s favor. The absence of testimony from Fleming simply goes to the weight of Bluff Creek’s evidence, which is something for the jury to decide, not a court on summary judgment. Because reasonable minds could draw different inferences

from the record as to whether Fleming had authority to bind Bluff Creek to the equipment lease, we reverse the district court’s grant of summary judgment.

Problem Case 1

1. Jonas Bravario hires Suzanne Hermano, a securities broker, to manage his $700,000 portfolio of securities. When Bravario managed his own investments, his in-vestment strategy was to own a large number of different companies, with no one company representing more than 5 percent of his total investments. Bravario also purchased all his investments for cash and did not borrow money to finance the purchase of any investment. Hermano is aware of Bravario’s historical in-vestment strategy, which Bravario informed Hermano that he wanted to continue in the future. Nonetheless, Hermano opts to purchase 1 million shares of Enron Corporation for $70,000. To finance the purchase, Hermano sells $40,000 of Bravario’s current investments and borrows $30,000 from Wells Fargo Bank in the name of Bravario. The interest rate on the loan is 10 percent. When Bravario discovers the purchase and the loan, he attempts to repudiate both contracts. Is Bravario liable on the Enron purchase and loan contracts?

Frontier Leasing Corp Problem Case