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Snell legally obligated to sell the Smiths the vehicle ? Should the Smiths agree to take the contract price of $21,000 from an ethical standpoint or should they agree to pay at least the purchase cost of $28,000 ?
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Chapter 33 Case Hypothetical and Ethical Dilemma “Maximillian Snell”
Facts:
Maximillian Snell is the owner of a used car dealership Maximillian Motors and he has been
having some recent troubles with attracting customers which has thus turned his sales team
into a bunch of no-shows this particular Monday. He has a difficult time retaining an
effective sales staff. His only loyal employee is his secretary of three years, Daisy Martinez
who is responsible for processing the paperwork after a sale of a vehicle. Since this
particular Monday there is no business, at 2 pm Snell is hungry and decides to go down the
street to a new Italian restaurant. Snell instructs Martinez to let any prospective customers
know that he will be stepping out until 3:30pm to eat his lunch. When he returns from his
lunch break, Snell asks Martinez if any prospective customers had come in to shop. Very
excited, Martinez responds “why yes, Max, there was a young couple who came by right
after you left. They wanted to buy that red BMW sedan on the front row, and I knew
business was slow, so I went ahead and sold it to them. The contract is here on my desk.
Aren’t you proud of me?!” A curious Max examines the contract on her desk and inspects
the essential requirements, the description of the vehicle, the couple’s signatures, Daisy’s
signature for Maximillian Motors, and the contract price of $21,000. Max reads the contract
price and begins to get red in the face as he heads to the computer for the inventory
purchase receipts. The purchase receipt indicates that he purchased the red BMW from the
auction last Wednesday for $28,000 and his established retail price was $31,000. When
Daisy hears the facts she breaks down, telling Max “please boss, don’t fire me, I’ve made a
terrible mistake! “Daisy informs Max that the couple will be back at 5:30pm to pick the
BMW up after a trip to the bank to get their $21,000
Issues:
Snell legally obligated to sell the Smiths the vehicle ? Should the Smiths agree to take the
contract price of $21,000 from an ethical standpoint or should they agree to pay at least the
purchase cost of $28,000 ?
Ruling:
Snell is legally obligated to sell the Smiths the car. In my opinion, the Smiths have no
obligation to purchase the car for the $28,000 auction purchase price.
R1. Agency type:
Apparent Agency (Agency By Estoppel)
Suppose a principal falsely leads a third party to believe another individual serve as his or
her agent. Does an agency relationship exist? Yes, because by his or her conduct, the
principal has created apparent agency or agency by estoppel.
R 2. Agency Relationships
Employer-Employee Relationship:
Employer hires employee to perform certain tasks; employer has right to control conduct of
employees
R3. Agent’s Duties To Principal
Duty of Loyalty. Courts suggest that the duty of loyalty is the most important duty. an agent
owes to a principal. Because of their fiduciary relationship, the agent has A responsibility to
act in the interest of the principal, including avoiding Conflicts of interest and protecting the
principal’s confidentiality. An agent cannot represent both the principal and a third party in
an agreement, because there could be a conflict of interest.
Chapter 33 Case Hypothetical and Ethical Dilemma “Maximillian Snell”
Duty of Notification. The agent has to communicate not only offers from third Parties but
also, under the duty of notification, any information he or she thinks could be important to
the principal. If a third party has made an agreement with a principal through an agent and
fails to meet the agreement, the agent must Notify the principal in a timely manner. The law
typically assumes that the principal is aware of all information revealed to the agent,
regardless of whether the agent shares it with the principal.
Duty of Performance. The duty of performance the agent owes the principal is twofold.
First, the agent must perform the duties as specified in the agency agreement.
Second, the agent must perform the specified duties with the same skill, care, are
professionalism as a reasonable person in the same situation would provide.
Duty of Obedience. Under the duty of obedience, the agent must follow the lawful
Instruction and direction of the principal. An agent who makes an unauthorized agreement
has failed to meet the duty of obedience. However, if the principal gives unlawful or
unethical instructions, the agent is not required to behave in accordance with them.
R4. Principal’s Rights And Remedies Against Agent
Constructive Trust. Agency relationships exist primarily for the benefit of the Principal.
Therefore, principals are the legal owners of anything an agent may come to possess
through the employment or agency relationship. Accordingly, an agent who through deceit
or other means retains such profits or goods has breached his or her fiduciary duties.
When an agent illegally benefits from the agency relationship, the principal may enact a
constructive trust on the profits, goods, or property in question.
Avoidance. When an agent breaches an agency contract or his fiduciary duties, The Principal
may use her right of avoidance to nullify at her discretion any contract the agent negotiated.
Indemnification. A third party who believes that an agent is acting with actual or apparent
authority may sue the principal for any breach of contract. However, if the breach was
caused by the agent’s negligence, the principal has a right to indemnification; that is, when
sued by a third party, a principal may sue his agent to recover the amount assessed to the
third party.
Analysis:
Snell has a legal obligation to sell the Smiths the BMW because there is a contract written
up that both parties agreed on. Unfortunately, in this case the merchant party made a
mistake in determining a price for the vehicle that is below the original auction purchase
price. Since the buyer has no knowledge of the purchase price at the auction or the dealer
markup margin, they just thought they were getting a good deal on a used BMW. Since they
did not know of the loss that they were causing the dealership, there is no ethical obligation
for the couple to pay the higher price to cover the cost of the BMW all because Daisy made
a mistake in determining the price of the vehicle
1- Is Snell legally obligated to sell the car to the couple? If so, at what price?
Snell is legally obligated to sell the car since he unintentionally opened a chance for
Daisy Martinez a secretary, not a member of the sales staff and whose work includes
processing “tax, title and tag” paper work after the sale to act as a member of the sales
Chapter 33 Case Hypothetical and Ethical Dilemma “Maximillian Snell”
team representing Maximillian motors. The contract made is therefore legally binding
to both the couple and Maximillian motors.
2- From an ethical standpoint, should the couple agree to pay at least Snell’s cost for the
car ($28,000?)
From the ethical point of view, the couple should agree to pay at least Snell’s for the
car. This is to reduce at least the loss incurred.
3- What type of authority (agency) did Daisy have?
Even though she has no authority to initiate any agreement and instead is under
instructions from Snell to tell any prospective customer that Snell would return at 3:
30p.m, the contract is binding as Daisy acts for Maximillian motors.
4- What should the court find? Who gets what? Who is responsible?
The contract made is therefore legally binding to both the couple and Maximillian
motors. So, Maximillian Motors is responsible.
5- Should Daisy be fired?
Snell would have avoided this case by ensuring that he has trained members of the
sales staff or strictly warning Daisy not to enter into an agreement.
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