May 10, 2010
A Teaching Case: Proper Assignment and the Authority to Lease a Beer Cart
The Iowa Supreme Court last week issued an opinion in Frontier Leasing Corporation v. Links Engineering, LLC, that may just find its way into my Business Associations I course in the fall. The case is reasonably short, covers several key agency issues, raises some great practice points, and provides good opportunities to discuss advising clients. I also like the fact that the district court, appellate court, and Supreme Court each have different views of the case.
The basics of the case are as follows: Links' golf professional, who was responsible for "day-to-day operations," signed a $19,000 lease for a beverage cart with a company called C and J Leasing Corporation (Leasing Corp.). Frontier claimed the lease had been assigned to it and sued for lack of payment. However, Frontier actually got the lease from "C and J Special Purpose Corporation, which in turn had been assigned the lease from C & J Vantage Leasing Company (Vantage)." The district court granted summary judgment for Frontier, and Links appealed.
The two issues on appeal were: "(1) Frontier was not the real party in interest because the lease had not been validly assigned to it, and (2) the Links employee who signed the lease did not have authority to bind Links to the lease." The court of appeals reversed the district court's grant of summary judgment because Vantage, which was not a party to the lease, could not assign the lease; the court did not address the authority issue. The appellate court also ordered the district court to allow for substitution of the real party in interest.
The Iowa Supreme Court affirmed the court of appeals, but also directed the district court to allow Links a chance "to resist substitution." In addition, the Supreme Court found that summary judgment was inappropriate as to the authority issue.
I like the case because it introduces issues such as actual and apparent authority, estoppel, and ratification in a fairly simple context. I also like it because there are a lot of discussion points available. For example, why doesn't the Supreme Court think payments on the lease for nine months indicate actual or apparent authority or ratification? There may be a good reason, but one is not given.
Similarly, the Supreme Court finds that apparent authority was refuted by an affidavit from Links' director and owner, in which he stated "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." Is an interested party's statement sufficient to establish customary practice?
In addition, how does one properly assign a contract? Why were there so many C and J companies? Was it wise? How does one keep track of the proper assigning party when there are several affiliates and subsidiaries?
Finally, what measures could Links have taken to ensure something like this doesn't happen again? Should Links take any additional measures even if vendors generally know golf pros usually don't have authority to enter financing agreements?
Anyway, if you are looking for a supplemental case for any of these issues, I recommend you take a look.