Build-It ConstructionCompany contracts with Classic Beverage Corporation to build Classic Beverage's corporate headquarters.Build-It Construction contracts with Dependable Tools & MaterialsInc for construction supplies but refuses to pick up the order

Question

Meanwhile, Classic Beverage hires Elmo, a certified public accountant, to work in its cost-accounting division as an employee, with no authority to hire or supervise others. Elmoasks Fayette, an outside experienced accountant, to advise him on certain accounting procedures but fails to pay Fayettefor the service. Classic Beverage also contracts with Gloria, a salesperson, to solicit orders for its products in a designated territory. Gloriaobtains an order from Highpoint Concessions, Inc, which is assured the order will be filled soon. But Gloriadoes not follow through with the paperwork and fails to submit the order to Classic Beverage. Highpoint Concessionssuffers a loss. Dependable Tools, Fayette, and Highpoint Concessionsclaim Classic Beverage is liable under agency law. Discuss fully whether an agency relationship was created by Classic Beverage with Build-It Construction, Elmo, or Gloria.

Answer 1

Whether Classic Beverage can be held liable by Dependable Tools, Fayette, and Highpoint Concessionsde¬pends on the relationship created by Classic Beverage in its contracts with Build-It Construction, Elmo, and Gloria. If the relationship is one of princi¬pal-agent, the parties agree that the agent will act on behalf of the principal, and any proper contracts made by an agent with a third person are binding on the principal. In analyzing the agency rela¬tion¬ship in this problem, it is important to distinguish the principal-agent relationship from that of employer-employee (master-servant) or employer–independent contractor. Contracts made with third parties by employees or independent contractors who are not also agents are not binding and are not enforceable against the employer.
Build-It Construction is employed as an independent contractor. It is neither an agent nor an employee for Classic Beverage. Because Build-It Construction has no authority to make contracts on behalf of Classic Beverage, the builder is not an agent. In addition, because Classic Beverage has no control over the details of Build-It Construction's conduct, the firm is not an em¬ployee. Therefore, only Build-It Construction, not Classic Beverage, can be liable to Dependable Tools for nonperform¬ance of contract.
Elmois hired strictly as an employee and has no authority to contract with third persons. Consequently, Elmois not authorized to hire a con¬sultant on Classic Beverage's behalf. Therefore, Fayettemust look to Elmo, not to Classic Beverage, for payment for ser¬vices.
Gloriais both an employee and an agent. As an agent she is hired specifically to solicit orders for Classic Beverage's products from third persons. If she has authority to so con¬tract, Classic Beverage is bound by her contract.