We have a business/family issue. This business was setup as an LLC. The owners of the business are Mother, Father (deceased ...
Agency is a relationship based on an agreement authorizing one person, the agent, to act for another, the principal. An agent may negotiate and make contracts with third persons on behalf of the principal. Actions of an agent can obligate the principal to third persons. An ordinary employee is not an agent unless the employee was hired to represent the employer in dealings with third persons. It is possible, though, for the same person to be both an agent and an employee. It depends upon the authority given the employee. An example would be the authority to make contracts on behalf of the employer. Apparently, at one time, the middle son was a purchasing agent for the LLC.A person has apparent authority as an agent when the principal, by his words or conduct, leads a third person to reasonably believe that the person/agent has the authority that the agent appears to have, and the third person relies on this appearance of authority. The question of apparent authority is probably the most litigated question in agency law. A third person who deals with a person claiming to be an agent cannot rely solely upon the statements made by the agent concerning the extent of the agent's authority. If the agent is not authorized to perform the act in question, or is not even the agent of the principal, the transaction between the alleged agent and the third person will have no legal effect between the principal and the third person. Third persons are under a legal obligation to find out the extent of the agent's authority. If the agency is revoked by the principal, the authority of the agent to act for the principal is not terminated until notice is received by the agent. The right of the agent to bind the principal to third persons generally ends immediately upon termination of the agent's authority. Notice to third persons is not necessary as far as termination of the right of the agent to bind the principal to third persons. However, if the agency is terminated by the principal, notice should be given to third parties. If notice is not given, the agent may have the apparent power to make contracts that will bind the principal and third persons. The reason for this rule is that a known agent (i.e., known to third persons) can continue to have the appearance of being an agent until notice is given to third persons. In the New Hampshire case of Record v. Wagner, Record owned a farm which was operated by his agent, Berry. Berry also lived on the farm. Berry hired Wagner in 1953 to bale hay. Berry told Wagner to bill Record for this work, which he did. Record paid Wagner. By the summer of 1954, the agency relationship had been terminated by Record, but Berry continued to live on the farm. From all outward appearances, nothing had changed. Berry asked Wagner again to bale hay and charge Record. Wagner performed the work, but Record refused to pay on the grounds that Berry was not his agent anymore. Wagner sued Record, and the Court held in favor of Wagner. The court said that since Berry had been terminated by Record, it was necessary for Record to give notice of the termination to third persons who had dealt with Berry. Since no notice had been given to Wagner, it was reasonable for him to assume that Berry was still Record's agent. Berry continued to have apparent authority to bind Record. Record would have a civil cause of action against Berry though. We can not give you a definitive answer to your questions since there are too many variables. If anyone has a criminal charge against the middle son, it would be the company from whom he made the purchases. If the company sued the LLC under an apparent agency theory and recovered, the LLC would have a civil cause of action against the middle son for damages. Embezzlement involves the taking of a person's property or money by another person to whom it has been entrusted, without permission. Since no tangible property was entrusted to the middle son, a charge of embezzlement would not seem appropriate.