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Business Associations
University of Illinois School of Law
Sharpe, Nicola Faith



FALL 2016


The manifestation of consent by one person (the principal) to another (the agent)

That the agent shall act on P’s behalf
And subject to P’s right of control

Consent by the agent

Lowest cost avoider

Formation of an agency relationship

Gorton v. Doty

Creditor/debtor or principal/agent?

Second Restatement § 14O

Agents’ authority

Types of Authority:

Actual Authority

Restatement § 2.01

The agent reasonably believes, in accordance with principal’s manifestations to the agent, that the principal wishes the agent to so act

Restatement § 2.02(1)

An agent has actual authority to take action designated or implied in the principal’s manifestations to the agent and acts necessary or incidental to achieving the principal’s objectives, at the agent reasonably understands the principal’s manifestations and objectives when the agent determines how to act


Mill Street Church v. Hogan

Apparent Authority

Restatement § 2.03

A third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations

Mill Street Church v. Hogan
370 leasing

Undisclosed principal

§2.06 of Restatement of Law (Third) Agency
Basic elements for an undisclosed principal case

1) instructions given to an agent
2) that qualify or reduce the agent’s authority to less than the authority the third party would reasonably believe the agent has under the same circumstances if the principal had been disclosed

Create liability for principals who chose to be hidden/undisclosed
Watteu v. Fenwick

§ 4.01(1)

Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority

§ 4.05:

Ineffective if “circumstances that would cause the ratification have adverse and inequitable effects on the rights of [T]” occurred.This includes “any material change in circumstances that would make it inequitable to bind the third party, unless the third party chooses to be bound.”

How transactions are ratified

Affirmation by Principal

Express Affirmation
Implied Affirmation through accepting benefits
Implied Affirmation through silence

§ 4.07 The principal must ratify the entire transaction or repudiate it entirely
Must have knowledge of material facts

Ratification has to occur at point in time where still able to accept/reject benefits
Boticello v. Stefanovicz

Principals’ liability

Third party relies on representation from you to their detriment, you can’t deny obligation created by that representation
Estop from denying agency
Binding obligation to principal based on representation by agent
Principal bound, but only principal: third party is not
Imposter: principal estopped from saying imposter doesn’t have authority to act on principal’s behalf
Restatement § 2.05 Elements

T is justifiably induced to make a detrimental change in position because the transaction is believed to be on the P’s account
P intentionally or carelessly caused such belief or
Having notice of such belief and that it might induce others to change their positions, P did not take reasonable steps to notify t

dependent contractor

Principal not liable in torts if non-agent independent contractor or if agent independent contractor
Principal liable in torts if master/servant

Humble Oil & Refining v. Martin
Hoover v. Sun Oil Company

Within the scope of employment

Purpose test

Restatement § 7.07

1) an employer is subject to vicarious liability for a tort committed by its employee acting within the scope of employment
2) an employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control.An employee’s act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer

Clover v. Snowbird Ski Resort

Purpose test applied, but did not deviate from purpose enough

Is it to help him perform his job
Intentional torts may be within scope of employment
Heckling was making his job difficult, within the scope of job because makes easier to do job
DC circuit has said: to be foreseeable the torts must be “a direct outgrowth of the employee’s instructions or job assignment.”
Liability for intentional torts committed in response to conduct that “presently interferes” with the agent’s ability to carry out the assigned task