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Business Associations
University of Illinois School of Law
Winship, Verity

BA1 – Winship – Sp11


· AP Smith Mfg. v. Barlow (1953): corporate donations

o [CB 7thed 265]

· “The common-law rule developed that those who managed the corporation could not disburse any corporate funds for philanthropic or other worthy public cause unless the expenditure would benefit the corporation.”

o DGCL 122

· “Every corporation created under this chapter shall have the power to … (9) Make donation for the public welfare or for charitable, scientific or educational purposes, and in time of war or other national emergency in aid thereof…”


· Agency relationship

o The manifestation of consent by Principal to Agent that A shall act

· On P’s behalf, and

· Subject to the principal’s control

o And the agent manifests assent or otherwise consents so to act

· Liability of Principal to Third Parties in Contract

o “When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal, the principal and the third party are parties to the contract.” Restatement (3d) of Agency 6.01

o The Agent’s Authority

· Mill Street Church of Christ v. Hogan (Ky. 1990)

o Church worker hired brother…implied authority.

· Dweck v. Nasser (Del. Ch. 2008)

o Attorney settlement binding

· Three-Seventy Leasing corporation v. Ampex Corporation (5th Cir. 1976)

o Apparent authority case

· Types of authorities

o Actual authority

· Express

· Implied

· 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, as the agent reasonably understands the principal’s manifestations and objectives when the agent determines how to act.

· Actual authority is created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s assent that the agent take action on the principal’s behalf. (Res. 3d 3.01)

o Apparent authority

· Principal – 3rd party communications

· What the 3rd party reasonably understands based on the communication of the principal

· Power held by an agent or other actor to affect a principal’s legal relations with third parties when 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

· Agent has apparent authority sufficient to bind principal when principal acts in such a manner as would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise

§ Absent 3rd party knowledge to the contrary, agent has apparent authority to do things which are usual and proper to the conduct of the business which he is employed to conduct

o Inherent authority

o Ratification

· What is it?

o 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 (Res 3d 4.01(1))

· What is the effect?

o After A acts without authority of any kind, P can still be bound if she ratifies the K.

· What is the required showing?

o Ratification requires ‘1)acceptance of the results of the act with an intent to ratify, and with 2)full knowledge of all the material circumstances.

· Affirmation can be express or implied.

· Botticello v. Stefanovicz (1979) p. 31

o Husband sold land owned jointly w/ wife. No ratification by wife, b/c not all elements satisfied.

c. Estoppel

· Commonly accepted elements:

1. Principal creates, through intentional or negligent words, acts, or omissions, an appearance of authority in the purported agent

2. The third party reasonably and in good faith acts in reliance on such appearance of authority AND

3. The third party changes her position in reliance upon the appearance of authority.

· Similar to apparent authority, except 3rd party has to have changed position in reliance

· Also, for apparent authority, need some sort of manifestation. But estoppel includes omission.

d. Agent’s Liability on the Contract

· Disclosed Principal

§ None

§ Two exceptions

· Clear intent of all parties that agent be bound

· Agent made contract but without authority

· Party to the contract?

· Fraud?

· Implied warranty of authority

Partially disclosed or undisclosed principal

§ Agent treated as though a party to the contract

§ If Agent wants to avoid liability, he must reveal not only (1) that he is acting on behalf of P but also (2) the identity of P.

§ T (3rd party) has no obligation to ask.

Atlantic Salmon A/S v. Curran (Mass. App. Ct. 1992) p. 38

§ Duty rests upon the agent, if he would avoid personal liability, to disclose his agency, and not upon others to discover it.

· Not enough that the other party has the means of ascertaining the identity of the principal

§ Agent liable if principal is not disclosed.

Liability of Principal to Third Parties in Tort

Servant/Employee vs. Independent Contractor

Servant / employee

§ An agent performing services in the master’s affairs whose physical conduct is controlled or is subject to the right of control by the master.

§ Restatement (2d) of Agency 1,2

o Master-servant relationship exists where servant has agreed

To work on behalf of the master and

To be subject to the master’s control or right to control the “physical conduct” of the servant

§ Physical conduct = manner in which job is performed

Independent contractor

§ A person who agrees to carry out some task but is not subject to the principal’s control in doing so

§ Principal sets forth the desired result but does not have the right to tell the agent how to achieve that result

§ Independent Contractor Types

Independent contractor (agent-type) (P not liable except in special cases)

· Subject to limited control by P with respect to the chosen result

· A has power to act on P’s behalf


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.

§ Foreseeability test not a freestanding test. ??

· Intentional Torts: Manning v. Grimley (1st Cir 1981) baseball spectator case

o In Massachusetts, a plaintiff can recover from employer for injuries resulting from employee’s assault only if employee’s assault was in response to P’s conduct that was presently interfering w/ the employee’s ability to perform his duties successfully.

§ Jury could have reasonably found that heckling by spectators was “presently interfering” w/ pitcher’s ability to pitch.

o Evolution of Intentional Torts and Scope of Employment

· Early common law, intentional tort was not within the scope of employment

§ But what about cases like bar bouncer, where violence is clearly foreseeable?

· Restatement (2d) of Agency 228(1)(d)

§ Intentional torts involving the use of force results in liability if use of force not unexpectable by master.

· Restatement (3d) of Agency, Comment c to 7.07

§ The determinative question is whether the course of conduct in which the tort occurred is within the scope of employment

§ Intentional torts and other intentional wrongdoing may be within the scope of employment.

Liability for Torts of Independent Contractors

· Generally, no liability for independent contractor

§ Unless…

· P retains control (i.e., really a disguised M/S relationship)

· P engages an incompetent contractor

· The activity is very hazardous, “nuisance per se.”

· Majestic Realty Associates, Inc. v. Toti Contracting Co.(1959) p. 71

§ P’s Building damaged from independent contractor’s negligence in demolishing adjacent building.

§ Razing of buildings in a busy section of city is inherently dangerous.

· Restatement (3d) of Agency 7.03

Principle is subject to direct liability to a third party harmed by an agent’s conduct when

Agent acts with actual authority or the principal ratifies the agent’s conduct and

The agent’s conduct is tortious, or

The agent’s conduct, if that of the principal, would subject the principal to tort liability; or

The principal is negligent in selecting, supervising, or otherwise controlling the agent; or

The principle delegates performance of a duty to use care to protect other persons or their property to an agent who fails to perform the duty.