Nogales Service Center v. Atlantic Richfield Company

In 1969 Nogales Service Center (Nogales) entered into an agreement with Atlantic Richfield Company (Atlantic) to construct a facility that included a service station, coffee shop, motel, restaurant, and offices. Atlantic lent Nogales $300,000 to finance construction. The companies also entered into an agreement for Atlantic to supply the service station with fuel, at prices determined by Atlantic. The facility opened in 1970 but did not include the motel or restaurant. Further, Atlantic’s price for fuel was not competitive with nearby service stations. As a result, the facility was not profitable. Eventually, Joe Tucker, Atlantic’s manager of truck-stop marketing, told Nogales that Atlantic would lend Nogales $100,000 for the construction of the motel and restaurant, give the facility a one-cent discount on fuel, and ensure that the facility was competitive. Atlantic lent Nogales the $100,000 but declined to give Nogales the fuel discount and never made the facility competitive. Nogales defaulted on its loans from Atlantic. Atlantic brought a foreclosure action against Nogales. Nogales filed a counterclaim against Atlantic for Atlantic’s failure to make the facility competitive or give Nogales a one-cent discount on fuel. At trial, Atlantic argued that Tucker did not have the authority to make those promises. The trial court gave a jury instruction regarding the concept of apparent authority, explaining that an agent only has the authority that its principal actually or implicitly gave him. Nogales did not object to this instruction. The trial court refused to give a contradictory jury instruction, Instruction 21, which explained that a principal is bound by agreements its agent makes if the party who made the agreement with the agent reasonably believed that the agent had the purported authority. Nogales challenged the court’s rejection of Instruction 21, arguing that it supported Nogales’s argument that Atlantic was bound to the agreements through Tucker’s inherent agency power.