Opinion ID: 2222926
Heading Depth: 1
Heading Rank: 4

Heading: The Law of Agency

Text: An agent is one who acts on behalf of some person, with that person's consent and subject to that person's control. See Dept. of Treasury v. Ice Service, Inc., 220 Ind. 64, 41 N.E.2d 201 (Ind.1942) (citing Restatement (Second) of Agency § 1(1) (1958)). If a party to a transaction has no notice that the agent is acting for a principal, the party for whom he acts is called an undisclosed principal, and the relationship between the agent and the principal is called an undisclosed agency. Restatement (Second) of Agency § 4(3) (1958). Both the trial court and the Court of Appeals concluded that an undisclosed agency existed between Dolin, the agent, and Oil Supply, the principal. (R. at 373-74); Oil Supply, 670 N.E.2d at 90. We agree. Those courts also concluded that Hires was entitled to set off Dolin's debt against the value of the goods shipped by Oil Supply, relying heavily on the well-recognized rule of agency law outlined in 3 American Jurisprudence 2d § 341: [O]ne who contracts with the agent of an undisclosed principal, supposing that the agent is the real party in interest, and not being chargeable with notice of the existence of the principal, is entitled, if sued by the principal on the contract, to set up any defenses and equities which he could have set up against the agent had the latter been in reality the principal suing on his own behalf. (R. at 374); Oil Supply, 670 N.E.2d at 89. While we agree that this established rule informs the case, we think our colleagues have drawn the wrong conclusion drawn from it. Both courts focused on Hires' assumption that the agent [wa]s the real party in interest. We think the case turns instead on the fact that Hires cannot set up its defense against Oil Supply unless it is not ... chargeable with notice of the existence of the principal. When Hires received the cases of antifreeze as payment of Dolin's antecedent debt, it signed shipping documents that made no mention of Dolin at all, but declared instead that the goods were from Oil Supply. (R. at 249.) This declaration should have alerted Hires to question the provenance of the cases and the nature of the transaction. Of course, the goods belonged to Oil Supply, who intended to sell them to Hires rather than pay on Dolin's pre-existing debt. Not only did Hires have an opportunity to question the transaction, it had the last opportunity to do so before the matter was complete and Dolin absconded, leaving the parties to sort out who must bear the loss. Hires, therefore, was chargeable with notice of the existence of Oil Supply as the principal. As a result, Hires is not entitled to assert the defense it would have had against the agent, Dolin, in this lawsuit brought by the principal, Oil Supply. This conclusion is bolstered by section 306 of the Restatement (Second) of Agency, which reads, in pertinent part: (2) If the agent is authorized only to contract in the principal's name, the other party does not have set-off for a claim due him from the agent unless the agent had been entrusted with the possession of chattels which he disposes of as directed or unless the principal had otherwise misled the third person into extending credit to the agent. The illustration provided after that section is also helpful: 1. A is authorized by P to contract to sell to T in P's name goods of which A does not have possession. A sells the goods in his own name and causes them to be delivered to T. At this time A owes T $500. In an action by P against T, T may not set off the claim which he has against A. We find nothing in the record to support the notion that Dolin was authorized to conceal the existence of Oil Supply as his principal. In fact, that Oil Supply's name was printed on the shipping receipt suggests the contrarythat Oil Supply had no desire to hide its existence. Section 306(2) prevents Hires from claiming a right of set off in this action by Oil Supply.