New Century Financial Services Inc. vs. Dennegar

Introduction/Summary of Case

• Lee Dennegar and Mark Knutson were roommates in a home owned by Dennegar. Dennegar made an agreement with Knutson that he is to oversee all household financials.
• Eventually Knutson died and it was discovered that a credit card had been issued in Dennegar's name now with outstanding charges of $14,752.93 (Fisher, n.d.).

Agency Law - Second Restatement of Agency

• Agency Law - authority placed on another individual to act on their behalf. The Second Restatement of Agency Contracts details the relationship between agents and principals.
• Principals and agents do not always have similar interests which can influence a potential conflict as seen in this case (Van Thiel & Smullen, 2021).

Agency Law Cont'd

• Knutson had oversight of all household financials and as the agent he may have seen fit to obtain additional credit to settle these expenses.
• With agent-principal relationships, the tradeoff between possible rewards and penalties may be uncertain, therefore the agreement should focus on maximizing the agent's utility (Carmona & Wang, 2021).

Factors of Consideration

• There was verbal authorization that ceded responsibility for the agent act on behalf of another, the principal. Risks of sharing confidential information exist.
• Liability related to unauthorized conduct of an agent is the responsibility of the principal as they assume negligence by transferring such power.

Verbal Authorization to Cede Responsibility

• Although not a formal written contract, Dennegar authorized consent for his agent to open mail, pay bills, now having access to confidential information.
• Verbal contracts complicate disputes between parties. Generally, there should be and offer, acceptance, and consideration (To draft or not to draft, 2021).

Risks of Sharing Confidential Information

• Dennegar was careless and negligent by sharing his personal information creating this sense seen in Knutson's behavior, therefore holding Dennegar liable for misconduct.
• Sharing private information with an agent also creates risks of a one-sided commitment to use the information 'appropriately' in the perspective of the principal (Zilberman, 2019).

Liability Related to Unauthorized Conduct

• Dennegar's finances were used to pay for everything. However, with no knowledge of the card being issued in his name, Dennegar believed the charges were to be disputed.
• Whether Knutson died or not the charges on the card were paid down by Dennegar anyway. Knutson had no money.

Conclusion

• Dennegar relied heavily on the Truth in Lending Act (TILA) to no avail but the TILA deemed unauthorized charges disputable only if authority was not transferred.
• Unfortunately for Dennegar, it was already established via agnecy laws that he had verbally agreed with Knutson to act on his behalf, giving authority over personal finances.

References

• Carmona, R., & Wang, P. (2021). Finite-State Contract Theory with a Principal and a Field of Agents. Management Science, 67(8). https://doi.org/10.1287/mnsc.2020.3760
• FISHER, J.A.D. (n.d.). NEW CENTURY FINANCIAL SERVICES INC v. DENNEGAR. Retrieved from http://caselaw.findlaw.com/nj-superior-court-appellate-division/1263011.htm...

References

• To Draft Or Not To Draft? The Dangers Of Verbal Contracts. (2021, September 6). Mondaq Business Briefing.
• Van Thiel, S., & Smullen, A. (2021). Principals and Agents, or Principals and Stewards? Australian Arms Length Agencies’ Perceptions of Arm’s Length Government Instruments. Public Performance & Management Review, 44(4), 758–784. https://doi.org/10.1080/15309576.2021.1881803

References

• Zilberman, E., Carrasco, V., & Hemsley, P. (2019). Risk sharing contracts with private information and one-sided commitment. Economic Theory, 68(1). https://doi.org/10.1007/s00199-018-1112-1