Prime Cars, Inc. buys and sells used automobiles. Occasionally, Prime has salespeople purchase used cars from third parties without disclosing that the salesperson is in fact buying for Prime's used car inventory. Prime's management believes better prices can be negotiated using this procedure. One of Prime's salespeople, Peterson entered into a contract with Hall in accordance with instructions from Prime's sales manager. The car was delivered one week later. After entering into the contract with Hall, and while driving back to Prime's palace of business, Peterson was involved in an automobile accident with another vehicle. Peterson's negligence and the resulting collision injured Kane, the driver of the other car involved in the accident.

Prime terminated Peterson's employment because of the accident. Following Prime's general business practices, Prime published an advertisement in several trade journals that gave notice that Peterson was no longer employed by Prime. Shortly thereafter, Peterson approached one of Prime's competitors, Bell Autos, Inc., and contracted to sell Bell several used cars in Prime's inventory. Bell's sales manager, who frequently purchased cars out of Prime's inventory from Peterson, paid 25% of the total price to Peterson, with the balance to be paid later when the cars were to be delivered. Bell's sales manager was unaware of Peterson's termination. Prime refused to deliver the cars to Bell or torepay Bell's down payment, which Prime never received from Peterson.

Peterson, in an attempt to get his job back, advised Dodge Inc. that he is an agent for Prime and he enters into a contract to buy 25 cars from Dodge at a very special price. When Prime hears of Peterson's actions, Prime is very happy with the deal and starts showing all of the 25 cars in its showroom for 2 months. Subsequently, because Prime is unable to sell the cars, it advised Dodge it will not pay for them because Peterson's actions were without authority as he was fired by Prime. Dodge sues Prime for the contract price of the cars.

Prime also refused to go through with the contract entered into by Peterson with Hall claiming that Peterson was fired. Kane also sues both Peterson and Prime for the injuries sustained in the automobile accident. Bell sued Prime for failing to deliver the cars or return the down payment paid to Peterson.