Principles of Agency At Work in Dispute

In 2006, an investment company (defendants in this case) entered into negotiations for the sale of a parcel of real estate with a couple. The couple began constructing a home on the parcel, intending the home to become their homestead upon completion. The investment company was also the sellers’ lender. Before the sale was finalized, the couple met with a contractor and contracted with them for labor and materials for the interior of the home. When the contractor found out sale was not yet finalized, they insisted that the investment company be placed on the invoice before they would accept a down payment. A few days later, the contractor received a down payment from an individual they had never heard of before referencing the invoice number. It was later learned that the individual was a principal of the investment company. 

Nevertheless, the contractor provided labor and materials on the project. Some days later, the undisclosed individual showed up on the job site, complained about the materials and removed the contractors from the job. The contractor never returned to the jobsite. In 2008, the contractor sued the investment company for breach of contract. The investment company denied any contract with the contractor and the trial court was tasked with concluding whether an agency relationship existed between the contractor and the investment company. At trial, the investment company principals testified that they viewed themselves as general contractors since they financially backed the project. Ultimately, they said, the buyers had the final say. The investment company moved for a directed verdict and the trial court granted it, stating they could not find any credible evidence indicating a contractual relationship existed between the investment company and the contractor. 

On appeal, the Iowa Court of Appeals affirmed, explaining that “an agency relationship exists where there is (1) manifestation of consent by one person that another shall act on the former’s behalf and subject to the former’s control and (2) the consent of the later to so act.” Here, the contractor had the burden of proving the existence of any agency relationship. In the end, there just wasn’t enough evidence presented by the contractor to convince the appellate court that an agency relationship existed. Castle Interiors, Inc. v. AC Investments, L.L.C., et al., No. 1-503/10-1921 (Iowa Ct. App. Jul. 27, 2011), 2011 Iowa App. LEXIS 769).