Posted: September 13th, 2017

LEGAL PROBLEM

LEGAL PROBLEM

There is a framework of analysis that should always be followed when writing an answer to a legal problem.  It can be summarized in the acronym “IRAC”.

First the answer to the problem must state the ISSUE.  The issue is the question that must be answered in order to know who will prevail in the dispute – the potential lawsuit — that is the subject of the problem.

Next, the answer should state the RULE — this is the legal principle that provides the answer to the issue.

Next the answer must discuss APPLICATION.  Your answer must explain how the rule of law connects with the facts of the case in order to show who will prevail in the dispute.

The last item to include is the CONCLUSION.   Who will win the dispute?  This must be stated here.

Consider this sample problem:

Fred and Ethel decided to buy a new refrigerator.  They went to Super Appliance store to look at the available models.  Rick approached them and said “Can I help you? – we are having a sale on refrigerators” Rick then showed them several refrigerators. They selected one; Rick produced a form with Super’s name at the top and filled it out as a memorandum of the sale.  Fred and Ethel paid cash for the refrigerator.  When the refrigerator was not delivered, Fred called the store.  Super informed Fred that Rick did not work for Super – Rick was in fact a “con man” who had carried out fraudulent activities inside Super’s store area. Super said that since Fred had no authority to represent Super, the contract was not binding on Super.  Was a bidning contract made between Super and Fred and Ethel for the sale of the refrigerator to Fred and Ethel?

(An answer to any legal problem should employ the IRAC form of analysis.  If the problem raises more than one legal issue, it is a good idea to first provide an answer to one issue.  After that is done, the process should be repeated for each of the other issues.)

SAMPLE ANSWER

A contract negotiated by one person on behalf of another person will be binding on that person only if the first person had authority to enter into that contract on behalf of the other party.  Did Rick have authority to make a contract on behalf of Super to sell a refrigerator to Fred and Ethel?

First we must determine if Rick had express authority to make such a contract.  Express authority is the authority that a principal confers on the agent by using specific words.  In this case Super never said anything to Rick that would have given him any authority to do anything on behalf of Super – he had not been given any express authority to represent Super.  Rick did not have express authority to bind Super to the contract with Fred and Ethel.

Did Rick have implied authority to enter into this contract?  Implied authority is authority that a court concludes the principal intended to give to the agent even though the principal did not use any words that would confer such authority.  Implied authority grows out of express authority – if an agent has no express authority he will not have any implied authority.  There are two definitions of the scope of implied authority:

1.    Agents have implied authority to do those things that other agents in similar circumstances normally have authority to do.

2.    Agents have implied authority to do those things which are reasonably necessary to carry out the duties which the principal has expressly authorized the agent to perform.

In this case, since Rick had no express authority, neither does he have any implied authority.

Did Rick have apparent authority to enter into this contract?   Apparent authority is that authority which the principal, by words or conduct, has led the third party to reasonably believe has been conferred on the agent by the principal.  Apparent authority cannot be created by the agent – it depends upon actions by the principal that lead the third party to the reasonable conclusion that the agent had received authority from the principal.  In this case it could be argued that the failure of Super Appliance to maintain control of the sales area of their store permitted Rick to use that space for his fraudulent activities; by permitting Rick to act as if he was a sales agent, Super caused Fred and Ethel to reach the reasonable conclusion that Super had given authority to sell appliances to Fred.  This would mean that Fred had apparent authority to make this contract on behalf of Super.  Therefore a binding contact for the sale of the refrigerator exists.

HOMEWORK PROBLEM #2

Jack and Mari decided to open a new bakery and pastry shop in Encino.  On 10 January 2000 they entered into a written agreement providing that each of them would contribute $50,000 to the capital of the business.  Jack and Mari agreed to work full-time for the partnership.  It was agreed that both Jack and Mari would have authority to buy and sell property on behalf of the business; they would also have the authority to borrow money for the partnership. They agreed that profits would be shared equally. The business was to be called “Romulus Bakery and Pastry Partnership”.

On 11 January 2000 Jack and Mari made an arrangement with Rob for Rob to become the pastry chef of Romulus.  Rob did not sign the partnership agreement; however Jack, Mari and Rob agreed in writing that Rob would work at least 40 hours per week at Romulus.  The agreement also provided that Rob was to be paid the minimum hourly wage plus an additional $15 per hour; in addition to this he was to receive 10% of any profits which Romulus might make.

On 12 January 2000 Jack and Mari made an arrangement with Lulu to use a building which Lulu owned as a location for the bakery and pastry shop.  The written agreement between Jack, Mari and Lulu provided that Romulus would be allowed to occupy the building for at least one year.  Jack and Mari also agreed that Lulu would be paid $500 per month and also 10% of any profits that Romulus might make.

Jack and Mari needed more capital to establish the business.  Ned, a friend of Jack’s, said:  “I will invest $50,000 in your business, but I don’t want to be a partner.”  Jack said: “That’s fine – you will not be a partner but you will get 10% of all profits of the business”.   On 2 February 2000 Ned gave Jack and Mari a check for $50,000.  At the same time they each signed a document that stated:  “Jack and Mari hereby acknowledge that Ned has invested $50,000 in Romulus Bakery and Pastry Partnership.  Ned shall be entitled to 10% of the profits of Romulus Partnership.  It is hereby agreed that Ned shall not be a partner in Romulus Bakery and Pastry Partnership.”

On 1 March 2000 Jack negotiated a written agreement with Santa Rita Bank; the bank loaned $50,000 to Romulus Bakery and Pastry Partnership.

Jack and Mari needed still more capital for the operation of the business.  Mari discussed the situation with her old friend Mr. Moneybags (a multi-billionaire). On 20 May 2000 Mr. Moneybags said: “If you have trouble borrowing money, you can always tell people that I am your partner”.  On 21 May 2000 Jack and Mari approached Morris, an officer at the Bank of Money, about the possibility of borrowing money from the Bank.  Mari said: “Mr. Moneybags is our new partner”.  Morris replied:  “We will lend you $100,000”.

Romulus was not successful.  About 18 months after it began doing business, the bakery and pastry shop closed.  Romulus still owed $49,000 to the Santa Rita Bank and $99,000 to the Bank of Money.  The Santa Rita Bank and the Bank of Money each brought lawsuits against Romulus, Jack, Mari, Rob, Lulu, Ned and Mr. Moneybags in an attempt to recover payment for the loans that they had made to Romulus Partnership.  What would the result of those suits be?  Explain.