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Dwight M. Kealy, J.D. Professor of Law New Mexico State University College of Business Department of Finance BLAW 313 Sports Law Contracts and Agency Law For this class I like to have more of a discussion than a strict lecture, but I still have notes that I can share of my thoughts on the subject. Below are my thoughts. We started this class by having you explore what it is like to be a sports agent, I want to review some general principles about Agency Law. We’re also going to cover Contract Law. It may sound overly ambitious to cover Agency Law and Contract Law in one lecture, but we got this. When you think of Agency Law, you may think about a Sports Agent or a Real Estate Agent. It’s true that these are agents, but Agency Law is broader than this. For example, if you are an employee, you are an agent of your employer. Agency Law Terminology: We call the two parties in agency law the principal and the agent. ● ●

The principal is the boss. The agent agrees to act on behalf of the principal and be subject to the principal’s directions.

The Law on Agency is called “The Restatement (Third) of Agency.” It defines agency as “the fiduciary relation [that] results from the manifestation of consent by one person to another that the other shall act in his [or her] behalf and subject to his [or her] control, and consent by the other so to act.” Let’s break this into pieces to understand it:

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Agency is a fiduciary relation ● A fiduciary is a relationship involving trust and confidence.

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Based on Consent.

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And to what did you consent?

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That you would

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act on the behalf of someone else, and subject to that individual’s control.

Just for an example? I’m teaching right now, so I’ll stop someone walking by and ask if the individual would be willing to go across the street and buy a drink for me at Chick-Fil-A? I’ll pay. I’d like a large Dr. Pepper. Has this person consented to a relationship of trust and confidence where she is going to act on my behalf and subject to my control in the purchase of this Dr. Pepper? It sounds like we have formed an agency relationship. Formation of the Agency Relationship

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Generally, agency relationships: ● Are consensual. ● Require no consideration. ● Require principal to have contractual capacity (agent does not). ● Can be created for any legal purpose.

So, I have a child who is a minor. We will get to this when we get to contract law, but I’ll go ahead and tell you that minors do not have the capacity to enter a contract. I could send my child to buy the Dr. Pepper. Let’s assume my child agrees to act on my behalf and be subject to my control on this matter. It sounds like we have established an agency relationship where I am the principal, and my child is my agent. Agents have the power to bind the principal to a contract. So, my child could go to Chick-fil-A, get the Dr. Pepper and say, “Put it on Professor Kealy’s tab.” I know, it’s 2020 and I don’t have a tab at Chick-fil-A, but they do have amazing customer service, and I have had some students who may be working there right now. Could I be forced to pay for the things my agent purchased at the market for me? Of course. The agent was acting within the scope of the authority granted to the agent, and I as the principal could be bound by the contracts entered into by my agent. Now it wouldn’t work if I switched places with my child and made my child the principal and me the agent, because the principal—not the agent—needs to have capacity to enter the contract. It also has to be for a legal purpose. So, if instead of sending someone to go buy a Dr. Pepper, a principal sends an agent out to buy cocaine and the agent says put it on the principal’s tab, the principal won’t be responsible for paying.

How are agency relationships formed? They can be formed by agreement. It could be express or implied by conduct. I could yell out to someone walking towards Chick-Fil-A and they could give me a nod and a thumbs up.

The agreement can be oral or written, but if the contract the agent is going to enter into needs to be in writing (due to the statute of frauds), then the agency agreement would also need to be in writing. (This is called the “Equal Dignity Rule”). There’s also Agency by Ratification. This is where a principal approves or affirms a contract by word or action. This is where someone who was not an agent enters into a contract for the principal and the principal wouldn’t be bound by the actions of this random third party, but the principal decides to approve the contract made by this random non-agent. For example, you are not my agent. I am not your principal. I have not given you any expressed or implied authority to bind me to anything. But, while you were studying how to be an agent for different sports, you found a line of shoes that was looking for a professor to be the image for the brand. You talked to them and learned that if I would make a total of three appearances advertising their shoes in the U.S.A. between now and December 31, 2020, the shoe company would pay me $1 million. You went ahead and signed the deal, signing it as my agent. Someone knocks on my door, stays 6 feet away because of coronavirus, and says, “You need to sign this document and buy your plane tickets to Chicago for your speaking engagement next month.” I say, “Wait a minute. I didn’t agree to speak in Chicago.” The person at my door says, “Well, your agent entered into this contract on your behalf, and you’re bound by the actions of your agent.” Remember: You’re not my agent and I’m not bound by your actions. I don’t have to make an appearance, but then I ask to read the agreement…. $1 Million. Not bad. Good initiative. Thank you. You weren’t my agent and so I’m not bound by the contract, but I could ratify it. This is where I, as the Principal, affirm a contract to which I might not otherwise be legally bound.

Agency by Estoppel An agency relationship can also be established by the concept of Estoppel. This is where a “principal causes a third person to believe that another person is the principal’s agent, and the third person acts to his or her detriment in reasonable reliance on that belief.” For example, let’s say that you and I are golfing with my friend Sergio who is a business broker—and a good golfer. I own a business, and you’re interested in buying it. While golfing, Sergio tells you that I have agreed to allow Sergio to sell my business for me. In truth, I never agreed to have Sergio by my agent or really do anything other than beat me at golf, but I am with you both when he tells you this, I hear him tell you this, and I don’t say anything. You then coordinate with Sergio to purchase my business. Then I refuse to sell you the business, arguing that I am not bound by Sergio’s sale because he was not my agent. Could I be bound by Sergio’s contract with you? Did I cause a third person (you) to believe that another person (Sergio) was my agent? Did you reasonably rely on this representation to your detriment? If so, I could be bound by the contract under the theory of agency by estoppel. Agency by Operation of Law An agency can also be formed by Operation of Law. Let’s say that I take my wife’s credit card with me to the grocery store to purchase groceries for the family. I purchase the groceries, and then she disputes the charges with the credit card company arguing that she had not authorized

me to be her agent to purchase groceries for the family. That’s clever, but it sounds like a dysfunctional relationship, and she’s going to lose this argument with the credit card company. For public policy reasons, we will say that I, as her family member, was her agent for the purpose of purchasing necessaries for the family.

Now let’s look at the Duties of Agents

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Performance Notification Loyalty Obedience Accounting

When I’m trying to memorize a list, I often use the first letters of the words to create a fake word that will help. So, what are the Duties of Agents? The answer is PNLOA.

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Performance: Implied condition to use reasonable diligence and skill. If agent fails, liability for breach of contract may occur. Notification: The agent must notify the principal of all matters concerning subject matter of agency. If you’re my employee and it turns out that we got sued, I expect you to give me the summons. ● The law assumes that the principal is aware of any information acquired by the agent that is relevant to the agency. Loyalty: Agent has the duty to act solely for the benefit of the principal and not in the interest of the agent or a third party. ● Maintain Confidentiality: Any information or knowledge acquired through the agency relationship is confidential. ● Actions Must Benefit the Principal: Agent’s loyalty must be undivided and not result in any secret profit for the agent. Obedience: Agent has a duty to follow lawful and clearly stated instructions of principal.

If a principal can be bound by the actions of an agent, I think it makes sense that the agent should have to follow the lawful, clearly stated instructions of the principal. If your employer (the principal) tells you NOT to go buy a new truck for the business, and then you go buy a new truck, I’m thinking that you just bought yourself a new truck. Ordinarily, an employee is an agent of the employer and the principal is bound by the contracts entered into by the agent, but you purchasing the truck exceeded the scope of your authority, and you breached the agent’s duty of obedience. Finally, there’s the agent’s duty of an accounting. ●

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Accounting: Unless agreed otherwise, the agent must keep a separate account of all property and funds received and paid out on the principal’s behalf—including gifts from third parties in connection with the agency. Account must also be made available to the principal by the agent.

Duties of Principals That was duties that the agent owes the principal. Now let’s talk about duties the principal owes the agent.

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Compensation Reimbursement and Indemnification

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Cooperation Safe Working Conditions

(You can think of the shoes “crocks” or ?? with CRCS, RCCS, SCCR) ●

Principal’s Duties to Agent: ● Compensation: Agent must be paid for services rendered. ● Reimbursement and Indemnification: Agent must be reimbursed for expenses and compensated for liabilities incurred from authorized/lawful acts.

Indemnification can mean more than reimbursement. It means to be “made whole.” This means that if there are liabilities incurred from the agent’s authorized/lawful acts, then the agent should be “made whole” for the expenses incurred due to these liabilities.

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Cooperation: Principal must cooperate with agent and assist the agent in performing his/her duties—and must do nothing to prevent that performance.

For example, let’s say that you decide to open an Audi dealership in Las Cruces. You coordinate with Audi and they tell you that you are going to be their exclusive agent in this area. You open your dealership on University Avenue. Then, less than a year later, Audi grants a dealership for someone else to open a dealership a few miles north on Lohman avenue. Right now, Las Cruces doesn’t have any Audi dealership. Do you think Las Cruces needs two? Could this hurt your business? This sounds like a violation of the principal’s duty to cooperate with the agent. ●

Safe Working Conditions: The principal is required to provide safe working premises, equipment, and conditions for all agents and employees.

Contract Law Some have you have already taken BLAW 316. Some of you haven’t. For those who haven’t, we’re diving in to information you might not know yet…but we’re diving in. I’m a rookie here at NMSU. I’m on the faculty team. I’m a professional. You make shoes. We’re thinking about an endorsement deal where you’ll put my name, logo, or likeness on shoes. Can I sue you for breach of contract? What is your first question? In order to sue for breach of contract, there needs to have been a contract. Is there a contract?

How would we analyze this? IRAC Issue: Was there an enforceable contract? Rule: What is our rule? Anyone? What law will we use to determine whether or not there is a contract? Where a contract is for goods, the Uniform Commercial Code (UCC) will control. Where a contract is for real property or services, the common law will control. Contract Law has two different sources: the Common Law and the Uniform Commercial Code (UCC). Where a contract is for the sale of goods, the UCC will be the controlling law. Where a contract is for real estate or services or insurance, the Common Law will be the controlling law. We won’t spend a lot of time talking about the difference between the UCC and Common Law, but I want to make sure that you understand this first step. It’s like deciding if someone is cheating when you’re playing monopoly. You can’t bring out the rules for “Sorry” or “Hungry Hungry Hippos” and say, “Ah, you’re cheating.” You have to make sure you’re looking at the right rules. The Common Law is a body of laws established over hundreds of years in the United States and, prior to the United States, in England. In the Common Law tradition, we look to the reasoning used in previous cases to resolve new disputes. The idea is that we expect similar cases to be resolved similarly. Judges look to past cases for resolving future cases, and we can look to these same cases for guidance on how our own cases should be resolved. Unlike the Common Law, the UCC is a relatively new development. It was first published in 1952 to govern commercial transactions throughout the United States. A: Here, because the contract is for services, C: the common law will control. Now, what does the Common Law say about whether or not there was an enforceable contract? Issue: Was there an enforceable contract? Rule: In order for a contract to be enforceable there must be: What do you remember from BLAW 316? What does it take for a contract to be enforceable? An enforceable contract is formed when there is 1) an offer, 2) acceptance, 3) consideration, and 4) an absence of defenses. Our Sports Law book says that in order for a contract to be binding there must be 1.

offer, 2) acceptance, 3) consideration, 4) legality, and 5) capacity. (p. 55).

That would work. You could use that. Can you see how both A and B are pretty much the same? A

B

Offer

Offer Agreement

Acceptance

Acceptance

Consideration

Consideration

Absence of Defenses

Legality Contractual Capacity

I like A better, and I used it on the CA and NM Bar exams. It saves me a step by not having to explain what an agreement is. You could argue that now I have to explain the two defenses, but there are more defenses than just Contractual Capacity and Legality. Can you think of other contract defenses from BLAW 316? You would then need to run through a mini IRAC for each element:

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Issue: Was there an offer? Rule: Provide the Common Law Definition of an Offer. Analysis: Here, in our situation, applying the facts to our rule, was there an offer? Conclusion:

2.

Issue: Was there acceptance? Rule: Common Law definition of acceptance? Analysis: Here, in our situation, applying the facts to our rule, was there acceptance? Conclusion:

3.

Issue: Was there consideration? Rule: Common Law definition of consideration? Analysis: Here, in our situation, applying the facts to our rule, was there consideration? Conclusion:

4.

Issue: Was the contract legal? Rule: Analysis: Conclusion:

5.

Issue: Did the party against whom enforcement of the contract is being sought have the capacity to enter the contract? Rule: Analysis: Conclusion:

Analysis: You have pretty much already done the analysis in discussing the definition of an enforceable contract. Therefore, it would probably be appropriate for your analysis and conclusion to blend together. Conclusion: This is actually the least important part of your analysis. It should be the logical conclusion of IR&A.

If you decide there was an enforceable contract, then you could sue for breach of contract. If you decide there was NOT an enforceable contract, then you could not sue for breach because there was no contract. Blended together it may look like this: Here, based on the analysis above, we have found that all of the elements necessary to form an enforceable contract have been satisfied. Therefore, the parties have formed an enforceable contract. What’s our next question? Issue: Was there a breach? Rule: What is a breach? A breach is breaking the promises formed in the contract. What were the promises?

Analysis: In this case, the parties agreed to ______________ and the defendant failed to do what was promised.

Conclusion: You have found that there was an enforceable contract and that one of the parties breached the contract. The plaintiff would be able to sue the defendant for breach. ………………….. Now, we need to fill in some gaps on the definition of offer, acceptance, consideration, and some defenses.

Offer One of you has a brand-new Mercedes that you drive to class with one of your classmates. It wouldn’t start this morning and you screamed, “For a thousand bucks, I'd get rid of this car.” Your passenger turns to you and says, “I accept.” The passenger then sues you to enforce the contract. Is there a contract? What is a contract? It requires an offer. Did you make an offer? Look through the elements above for what constitutes a valid offer. Did you really have an intent to be bound to sell your new Mercedes for $1,000, or would a reasonable person listening to you think that you were just frustrated? I do not think you had the intent to be bound, so there was no offer, and if there was no offer, there was no contract. If your passenger sues you to enforce the contract to purchase your Mercedes for $1,000, your passenger will lose because there was no contract. What if I say, “I think I’m going to sell my guitar someday for $100 because I’m never going to use it.” Have I made an offer? No, there’s no intention to be bound. This is a statement of future intent, not an offer. Sometimes a document can really look like an offer, but then it falls short because it contains language that makes it not a contract. For example, Buyer sends Seller a letter of intent for the purchase of a tract of land. The letter of intent outlines the purchase price, the legal description, and the financing terms. A paragraph is included that states, “this is a non-binding agreement intended as an offer to enter into negotiations.” Until the last sentence, this looked like an offer. However, the last sentence makes it clear that this is a non-binding agreement to enter into negotiations. An offer requires an intention to be bound, and this agreement states that it is a non-binding agreement. Therefore, there is no offer, and therefore, there is no contract. Finally, Imagine I have a great sailboat that has been in my family for generations. I bring it out to Las Cruces and park it near the base of the Organ Mountains. Sometimes I go and sit on the boat and look at the mountains with a

cup of coffee. One day you join me. You say, “Wow. This is a nice boat. How much would you sell the boat for?” I say, “I would sell this boat to you for $50,000.” I say this only because I don’t think you have $50,000 because I really don’t want to sell it at any price. But then you say, “I accept,” and give me $50,000. Did I make an offer? What do you think? I didn’t want to, but an offer consists of an objectively expressed intention to be bound. We can’t know m...