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

Business Associations Outline

I. Agency
a. DEFINED
i. RESTATEMENT (agency) 1.01–What is an agency relationship? Fiduciary Relationship that results from manifestation by one person (principal) that the other (agent) can act on their behalf and subject to principal’s control, and agent manifests assent or otherwise consents-makes P liable to Third Party for contracts of A with T on P’s behalf
1. elements
a. Mutual consent (formal, informal, express, implied)
b. Agent undertakes to act on behalf of another and subject to their control
c. Attribution-treat principal as knowing/receiving/communicating all information known by agentàagent has duty to communicate these relevant facts
d. Can be a gratuitous agent—don’t need consideration
e. Interface function ubiquitous in agency law
f. TYPES OF AUTHORITY in agency
i. Actual (express/implied)
ii. Apparent
iii. Undisclosed principal
iv. ratification
2. lawyer as agent for client
3. does agency still apply if you borrow someone’s car?
4. manager accepts renter on behalf of building owner
5. agency is more than a mere contractual relationàex. leaving suit at dry cleaners does NOT make them you agent. You are not controlling their actions.
ii. RESTATEMENT (agency) 1.02—Labeling/Popular Usage—Calling something “agency relationship” or lack of formal agreement is NOT controlling. The relationship arises whenever elements are met
1. you don’t need to say someone is your agent
iii. RESTATEMENT (agency) 1.03—Manifestation—Manifesting assent occurs through writing, spoken words, or other conduct. (e.g. don’t have to say it)
1. law looks at outward manifestations rather than their thoughts at the time (similar to contract law)
2. your contract can say it is NOT agency, but if all other elements appear to create agency the court can still find agency exists
iv. RESTATEMENT (agency) 1.04—Terminology-
1. disclosed
2. undisclosed
3. unidentified
4. coagents
5. gratuitous
6. notice
7. person
8. subagent
9. trustee/agent-trustee
v. RESTATEMENT (agency) 2.01-actual authority-agent acts with actual authority when agent reasonably believes, in accordance with principal’s manifestations to agent, that principal wishes agent to so act.
1. Ted uses as proof of Alan’s authority a letter Pam gave to Alan directing Alan to sell Whiteacre for Pam
2. LOOK AT manifestation of intent from P to A
3. P gave indication to A and A acted reasonably using this
vi. RESTATEMENT (agency) 2.03-apparent authority- apparent authority is power held by agent or other actor to affect principal’s legal relations with third parties when a third party reasonably believes actor has authority to act on behalf of principal and belief is traceable to principal’s manifestations.
1. Ted uses as proof a letter from Pat to Ted indicating that she told Alan to sell Whitearce
2. LOOK at manifestation of intent from P to 3rd party
vii. Groton v. Doty, 1937- agency relationship created when Garst borrowed car of Doty to drive it to football game. Doty gave consent and Garst acted on Doty’s behalf. This was a situation of actual authority. There were Issues about fairness of case, because it was brought up that Doty likely had insurance for this type of situation.
1. policy issues
a. lowest cost avoider-owner of car can prevent who uses it
b. encourage use of insurance
c. what should Doty have done differently?
i. RENT car—different situation
ii. Bailment—contracting to have custody for a time
b. Who is an agent?
a. RESTATEMENT (agency) 2.05-Estoppel to Deny Agency Relationship- A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person’s account is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person’s account, if
i. (1) the person intentionally or carelessly caused such belief, or
ii. (2) having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.
2. T is justifiably induced to make detrimental

ority to act on behalf of principal and belief is traceable to principals manifestations”
ii. Analysis
1. manifestation attributable to principal
2. reached 3rd party
3. caused 3rd party to believe apparent agent authorized
4. 3rd party belief was reasonable
iii. One party makes manifestation which somehow reaches third party and which alone or in context of other circumstances causes 3rd party to reasonably believe apparent agent is authorized to act for apparent principal
iv. Place blame on principal because they could have better prevented it-lowest cost avoider
v. Effort to not disrupt normal commercial operations
c. if principal is known
d. can flow from principal’s manifestation’s to 3rd party or from custom
e. notice given to agent acts as notice to principal unless 3rd party had reason to know they were acting adversely (attribution rule)
i. off-the-job information still must be given to principal and is attributed to principal
ii. most courts say if agent should know but doesn’t, it is not attributed to principal
f. often called “apparent authority by position”=person in this position should be able to do this…
i. putting agent in a particular role may be enough of a manifestation to 3rd party that they have the power to act in a certain way
1. CEO-apparent authority for transactions
2. branch manager-varies?
g. can flow from inaction if 3rd party knows principal is aware and has not stopped agent
h. lingering apparent authorityàwhen person removed from position but 3rd party does not know yet
i. much more contested in court—turns on whether 3rd party’s belief was REASONABLE
i. duty to inquire further if belief does not seem reasonable