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Facts[]

Both parties entered into a sales contract with the Studebaker Company for the sale of automobiles within a specified area, the contract containing a clause that:

if a dealer sells a Studebaker automobile outside of his territory, or if a Studebaker automobile sold by dealer, shall be taken from dealer's territory by purchaser within 90 days from the date of delivery, and remains in the other dealer's territory for a period of four months or more, dealer in either event shall pay one-half of dealer's discount profit to the Studebaker dealer into whose territory the automobile is taken.

The plaintiff entered into a similar contract with the Studebaker Company covering an adjoining area to that of the defendant, and while so employed the defendant sold a car to a arm having its place of business within the plaintiff's area and into which area the car was immediately taken. The plaintiff obtained judgment in an action to recover half the commission which was appealed.

Issue[]

  1. Can the parties take action against one another?

Decision[]

Appeal dismissed, contract exists between the parties.

Reasons[]

The Court holds that Studebaker is acting as an agent in this clause to create a contract between the dealers and creating privity of contract between them. Macdonald lays out a test for agency:

  1. agent brings parties together,
  2. the parties’ recognize that agency has been created; a formal designation is not necessary.

Each of them agreeing to abide by this promise is sufficient consideration for a contract to be found.

Ratio[]

The principal can sue when an agent is the promissee.

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