Morris Oil Co. v. Rainbow Oilfield Trucking, Inc.
New Mexico Court of Appeals
741 P.2d 840 (1987)
Dawn Enterprises (Dawn) (defendant) took full operational control of Rainbow Oilfield Trucking (Rainbow) (defendant), collecting its revenue and returning a share, while secretly agreeing that Rainbow was not Dawn's agent and could not incur debt in Dawn's name outside the ordinary course of business; Rainbow, without disclosing its relationship with Dawn, bought diesel fuel from Morris Oil Company (Morris) (plaintiff), then went bankrupt still owing Morris $25,000 while Dawn still held $73,000 collected from Rainbow's operations. When Morris discovered Dawn's involvement, Dawn initially promised to pay the debt but later refused; the trial court held Dawn vicariously liable as Rainbow's principal, and Dawn appealed.
Whether a principal is responsible for debts its agent incurs to a third party in the ordinary course of business when the third party does not know about the agency relationship, and when the principal has specifically but secretly forbidden the agent from incurring the debt.