Opinion ID: 452122
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Heading Rank: 1

Heading: Agency Relationship between Federal Pants and D-S Enterprises

Text: 9 In its complaint, Federal Pants alleged that D-S Enterprises had breached an exclusive agency agreement or merely an agency agreement with Federal Pants under either of which D-S Enterprises was to act as Federal Pants' purchasing agent in obtaining Nike goods. In addressing this allegation, the district court noted that there was not much evidence presented on the existence of an agency relationship and that even if such a relationship existed, it did not survive Nike's termination of D-S Enterprises as an authorized dealer. Furthermore, the district court noted that even if D-S Enterprises had an obligation to offer to Federal Pants the merchandise that it had acquired in its settlement negotiations with Nike, D-S Enterprises did not have to decline to accept this merchandise when Federal Pants was unable to finance the settlement. 10 According to the Restatement (Second) of Agency, an agency relationship is the fiduciary relation which results from the manifestation of consent by one person [the principal] to another [the agent] that the other shall act on his behalf and subject to his control, and consent by the other so to act. Restatement (Second) of Agency Sec. 1(1) (1958); Krueger v. State, 39 Wis.2d 729, 732, 159 N.W.2d 597, 599 (1968). An element of the agency relationship is the understanding of the parties that the principal is to be in control of the undertaking and that the agent shall serve as a fiduciary subject to the directions of the principal. Restatement (Second) of Agency Sec. 1 comment b; Alexopoulos v. Dakouras, 48 Wis.2d 32, 40, 179 N.W.2d 836, 840 (1970). In addition to generally defining an agent, the Restatement (Second) distinguishes an agent from a supplier: one who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself. Restatement (Second) of Agency Sec. 14K. The Restatement (Second) enumerates several factors relied upon in determining whether the one who is to acquire the property and transfer it to the other is a supplier selling to, and not acting as an agent for, the other: (1) whether the person is to receive a fixed price for the property, irrespective of the price paid by him (the most important factor); (2) whether the person acts in his own name and receives title to the property which he thereafter is to transfer; and (3) whether the person has an independent business in buying and selling similar property. Id. comment a. 11 In the present case, there are several facts suggesting that an agency relationship did exist between Federal Pants and D-S Enterprises. 1 The June 23, 1982 letter evidencing the agreement between Federal Pants and D-S Enterprises provided that Federal Pants, Inc. and Harold Foonberg are guaranteeing up to One Million Dollars (1,000,000.00) of purchases of D-S Enterprises, Inc. from Nike. These are purchases which may be re-sold by D-S Enterprises to Federal Pants, or to such persons designated by Federal Pants. Although it provides some evidence of an agency relationship, this provision does not clearly establish an agency relationship because it might equally be describing a supplier relationship. However, in applying the agent-supplier criteria set forth in the Restatement (Second), it appears that D-S Enterprises might have been Federal Pants' agent since D-S Enterprises was to receive a fixed 5% commission for the Nike merchandise sold to Federal Pants. This factor is the most important one in determining whether an individual is serving as an agent or a supplier according to the Restatement (Second). As to the second factor of the Restatement (Second) test, D-S Enterprises did not act in its own name or in Federal Pants' name, but rather booked and billed the orders to Gary DuPuis of Performance Sports. Thus, this element does not operate to the benefit of either D-S Enterprises or Federal Pants. Finally, as to the third factor, although D-S Enterprises operated out of Stocking's law firm, had no employees, office, or equipment of its own, and did not appear in any professional directories, it did have an independent business since it booked goods for Western Mercantile in addition to Federal Pants. Thus, based on the fact that D-S Enterprises received a fixed commission, we conclude that an agency relationship may have existed between Federal Pants and D-S Enterprises. 12 Even if D-S Enterprises was Federal Pants' purchasing agent for Nike merchandise, however, the agency relationship came to an end when Nike terminated D-S Enterprises' dealership rights after discovering that D-S Enterprises was selling Nike goods to Federal Pants, an unauthorized dealer, in late August or early September 1982. According to the Restatement (Second), the authority of an agent terminates when he receives notice of the happening of an event or of a change in circumstances from which he should reasonably infer that the principal does not consent to the further exercise of authority or would not consent if he knew the facts. Restatement (Second) of Agency Sec. 108(1) (1958). In addition, an agent has the duty to use reasonable efforts to give to his principal information relevant to affairs entrusted to the agent. Id. Sec. 381; Schweiger v. Loewi and Co., 65 Wis.2d 56, 64, 221 N.W.2d 882, 888 (1974). In the present case, D-S Enterprises notified plaintiff Foonberg of Nike's termination of D-S Enterprises as an authorized Nike dealer in September 1982. Upon receipt of the notice, Federal Pants did not instruct D-S Enterprises to sue Nike for Federal Pants' own benefit. In fact, Federal Pants did not respond in writing to this notification until November 23, 1982, when it sent a letter to D-S Enterprises. Furthermore, this November 23 letter attempted to formally wind up Federal Pants' relationship with D-S Enterprises by requesting that Federal Pants' $1 million letter of credit be exonerated since D-S Enterprises no longer needed it. The letter also suggested that D-S Enterprises send a release of mortgage form to Federal Pants since Federal Pants would no longer need any security for its posting the letter of credit. The letter did not indicate that Federal Pants believed that D-S Enterprises had breached any fiduciary duties to Federal Pants, but rather concluded by thanking defendant Stocking for his courtesy and cooperation. In sum, Federal Pants' response upon learning of Nike's termination and its November 23 letter show that any agency relationship that may have existed between Federal Pants and D-S Enterprises came to an end when Nike terminated D-S Enterprises as an authorized Nike dealer. Thus, any Nike merchandise received by D-S Enterprises pursuant to the settlement negotiations with Nike was obtained for its own rather than for Federal Pants' benefit. We accordingly affirm the district court's denial of plaintiffs' motion for summary judgment on the agency counts.