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Business Organizations
Rutgers University, Camden School of Law
Laby, Arthur B.


1) DEFINED: Restatement §1 – The fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.

2) Principal – The one for whom action is to be taken

3) Agent – The one who is to act

D. Restatement (Second) Agency §1 –
1. Consent
2. One Person to Another (must be at least 2 people)
3. Subject to Control by the Principal
4. Consent by the other to so Act
5. (NOT limited to business/commercial transactions)

E. Respondeat Superior
1. Notion of a 3rd Person made liable for the acts of another
2. Imputed Agency (Someone is responsible for what someone else does)

F. Agency Typology
1. ACTUAL AUTHORITY – (Principal to Agent Relationship)
a. Express (written or spoken)
b. Implied
c. Actual Authority depends heavily on what the Principal does
2. APPARENT AUTHORITY – (Principal to 3rd Parties via Agent)
a. DEFINED: Restatement §8 – The power to affect the legal relations of another person by transactions with 3rd persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to such third persons.
b. “Parties Expectations” ß The party that is trying to establish liability, what is their reasonable expectation?
c. “Reasonable Reliance”
d. Apparent Authority depends partly on what the Principal does, and partly on how the 3rd Party perceives it. Apparent authority focuses on 3rd parties’ reasonable understandings of Principal’s relationship with Agent.
i. 3rd party MUST be aware of the existence of the principal; otherwise it would be neither reasonable NOR apparent.
ii. Principal must manifest agency (Hold the agent out as agent.)
1. Either Directly to the 3rd party (typically contract), or
2. To the community in general (applicable in tort as well)

a. DEFINED – Restatement §8A: Term used to indicate the powe

ally, by act or omission, the appearance of authority.
b. 3rd Party reasonably and in good faith acts in reliance on this appearance.
c. 3rd Party “changes position” in reliance upon appearance.

I. Attempt by Principal to Limit Scope of Agency (3 Situations)
1. General agent does something similar to what he is authorized to do, but in violation of orders.
2. Agent acts purely for his own purposes in entering into a transaction which is within the scope of his agency.
3. Agent is authorized to act, but does so in a manner other than the authorized manner to act.

J. Agent’s Liability on Contract
1. If you’re the agent for a fully disclosed principal, the K is between the Principal and the 3rd Party.
The 3rd party has no reasonable expectation that the K is between themselves and the Agent.