Question

Robert was a purchasing agent for Dark Water Horizons. Robert would routinely purchase materials, supplies, and equipment from vendors on behalf of Dark Water Horizons. Vendors would allow Robert to pick up the purchases and instead of paying cash, the vendors would bill Dark Water Horizons for the amount owed creating a credit relationship. Robert was caught embezzling from Dark Water Horizons and was immediately fired. Discuss the duty of notification. Who has the duty? What notice, if any, is required?

Answer 1

Dark Water Horizons has the duty to notify the third parties which include the vendors from whom Robert used to purchase materials on behalf of Dark Water Horizons. Robert is the agent and Dark Water Horizons is the principal in this agency relationship. When an agency has been terminated by the act of the parties, it is the duty of the principal to inform the third parties who know the agency relationship between them that the agency has been terminated. Even though the actual authority of Robert to purchase the materials ends with his termination, the apparent authority continues until the vendors receive the notification about termination. If the principal knows about the direct dealing between the agent and third parties, the principal should notify the third parties directly. Otherwise, a constructive notice like newspaper publication is sufficient. Here Dark water knows about the direct dealing between Robert and vendors and that vendors used to allow Robert to pick up the purchases and instead of paying cash they bill Dark Water Horizons later. Hence Dark Water Horizons should notify them directly to avoid any liability through Robert's misuse of apparent authority.