Agency and Partnership

Prof. Ricks

Exam: essay and short answers—open book

Jan. 17. 2001

1. Introduction: notes and problems—pg. 4.

1. Fictitious name: needed for more customers and better marketing. Pay a fee for the name, thus no other corporation can have the same name.
2. If I am a plumber and own a company, can the tort victim have a recourse against the individual, yes, because the sole proprietorship is fictitious. Sole proprietor can be held liable so that is why we have entites, to make it harder to recover against the individual.
3. Borrow the money or equity participation cannot be given by a sole proprietorship because that makes the person putting in the money a partner.

1. The Types of Firms:

1. Sole Proprietorships: is a business owned by a single individual. While that individual may hire employees or other agents to assist him or her in conducting business operations, the proprietor is the sole owner of the business.

1. The business has no legal existence independent of the proprietor. There is no entity which can sue or be sued or which can shield the proprietor from personal liability for debts arising out of the business.
2. A sole proprietorship will be subject to general state laws and regulations such as those governing the operation of the business under a fictitious name and those requiring licenses and permits for the operation of certain types of business. It will also be governed by general principles of agency and employment law whenever the sole proprietor hires agents or employees to assist with buisness operations.
3. The proprietor has sole control over the business and all decisions relating to the operations unless that control has been delegated to agents. All debts of the business are also debts of the proprietor, and in fact, business assets can be seized to pay for personal debts of the proprietor.
4. Becausee the business has no separate legal existence, the proprietor will be able to use the business assets for personal purposes and personal assets to meet business obligations. There is no need to segregate the assets or income. All earnings or losses are attributed or taxed directly to the proprietor.
5. A sole proprietorship as no separate tax status. It is just treated as an extention of the owner. The owner is required to report all items of income and expense on his or her personal income tax return.
6. There is a separate schedule on which to calculate profit and losses from a business, but there is no separate tax on income earned from such an enterprise. The income is added to any other taxable income of the owner.
7. If there is a loss from the business, such loss can generally be deducted from other taxable income earned by the owner.

1. Formation of Agency Relationship:

1. Generally:

1. Rest. 2d §1è Agency; Principal; Agentè (1) Agency is 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) the one for whom the action is to be taken is the principal; and (3) the one who is to act is the agent.
2. Rest. 2d § 15è Manifestations of Consentè An agency relation exists only if there has been a manifestation by the principal to the agent that the agent may act on his account, and consent by the agent so to act.

1. Green v. H & R Block:

1. Facts: involves the tax participation and refund services provided by H & R to thousands of Maryland residents. The issue here was whether H & R may have a duty to disclose to customers the benefits it receives from lending institutions to which it refers customers who are seeking a bank loan in the amount of their anticipated tax refund. The trial court granted H & R motion to dismiss finding that H &R had no duty to disclose the benefits because no fiduciary obligation exists between H & R and its customers. Court of Appeals reverses finding that sufficient facts have been alleged to warrant a factual determination regarding the existence of a principal-agent relationship that gives rise to fiduciary duty to disclose any conflict of interest.
2. Whether an agency relationship exists btween H & R and its taxpayers customers, in particular those customers who choose to participate in H & R’s RAL program? the creation of an agency is determined by the parties agreements and actions.
3. Whiles the agent and the principal must both consent to the relationship, an agency relationship can be created by express agreement or by inference from the acts of the agent and principal. Thus, the relationship may be implied from the words or conduct of the parties and the circumstances.
4. this class action lawsuit was filed on behalf of all those in Maryland for whom H & R block prepared taxes and who participated in its "Rapid Refund" program by obtaining an Rapid Anitcipation Loan any time from Jan 1992 to present. H & R’s tax filing services allow customers to obtain faster tax refunds than would otherwise occur by simply mailing the return to the IRS.
5. What is the rule? The predominate issue here is whether an agency relationship exists between H & R and its taxpayers customers, in particular those who participated in its program.
6. Rest of Agency –"Agency is the fiduciary relation which results from the manifestitation 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.
7. The creation of agency relationship ultimately turns on the parties intentions as manifested by their agreements or action.
8. Three characteristics to the existence of the principal-agent relationship: (a) the agent’s power to alter the legal relations of the principal; (b) the agent’s duty to act primarily for the benefit of the principal; and (c) the principal’s right to control the agent. These factors are not essential elements of an agency relationship and are not determinative but rather should be viewed in within the circumstances. These factors should be viewed within the context of the entire circumstances of the relations.The appellate court states that there are two fundamental elements for the creation of the agency relationship: (1) some manifestation or indication by the principal to the agent that he consents to the agent’s acting for his benefit; and (2) consent by the agent to act for the principal. The agency relationship can arise only when there is mutual consent between two parties that it should arise. Consent may be inferred from words or conduct. Although some manifestation of the principal’s consent must actually come to the attention of the agent, the agent need not necessarily communicate his consent to the principal if under the circumstances embarking on the purpose of the agency is itself sufficient indication of consent. So the factors stated by the t.c. are not exclusive or determinative:

1. Level of control: pg. 21—the control a principal must exercise over an agent in order to evidence an agency relationship is not so comprehensive. A principal need not exercise physical control over the actions of its agent in order for an agency relationship to exist; rather the agent must be subject to the principal’s control over the result or ultimate objectives of the agency relationship. Often an agent is left free from direct supervisory control as he or she furthers the interest of the principal. The control of the principal does not include control at every moment; its exercise may be very attenuated and may be ineffective. In fact, there are circumstances under which very little control is exercised by the principal.
2. If it is otherwise clear that there is an agency relation….the principal, although he has contracted with the agent not to exercise control and to permit the agent the free exercise of his discretion, nevertheless has the power to give lawful directions which the agent is under a duty to obey if he continues to act as such.
3. It is does not matter if H & R as the principal actually exercised the control, they just have to have the "right to control."
4. The level of control a principal must exercise over the agent becomes more clear when it is contrasted with the control exercised by the master in a master-servant relationship. Ordinarily a principal is not liable for the incidental acts of negligence in the performance fo duties comminted by an agent who is not a servant. An agent is a person who represents another in a contractual negotiations or transactions. A servant is a person who is employed to perform personal services for another in his affairs, and who in respect to his physical movements in the performance of the service is subject to the other’s control or right to of control. Persons who render service but retain control over the manner of doing it, are not servants.
5. Unless the act was directed by the principal, the principal is not liable for incidental acts of negligence by the agent. A principal employs the agent to accomplish a result but may not have the right to control the movements. It is a master-servant relationship if the employer has the right to control and direct the servant in the manner of which the work must be done. Therefore the level of control which a principal has over an agent is less. Control in a principal-agent relationship is that the principal must have the responsibility to control the end result of his agent’s actions and that is all. Therefore, it is reasonable to conclude that H & R customer’s retain control over H & R’s ultimate actions and representations with respect to filing the tax return. This is enough to make them an agent of the customers.
6. What about altering the relations? The t.c. stated that because H & R customers actually sign the loan application, and not H & R themselves, H & R does not have the ability to alter the legal relations of its customers. Appellate court disagrees and states: when the facts otherwise demonstrate an agency relationship, that relationship cannot be negated simply because the principal’s and not the agent’s signature appears on a document otherwise preparted and negotiated by the agent. Therefore although it is the customer’s signature on the application, it is H & R’s roles in implicitly endorsing the contents of the loan application that lowers the perceived risk to the abkc of providing the loan—thus H & R plays an intergral part between its customers and the bank—affecting their customers legal realtions with a third party (the bank).

1. Rest 2d §12è An agent of apparent agent holds a power to alter the legal relations between the principal and third person and between the principal and himself.
2. Rest. 2d § 13è an agent is a fiduciary with respect to matters within the scope of his agency.
3. Rest. 2d § 14è a principal has the right to control the conduct of the agent with respect to matters entrusted to him.
4. The party asserting that there is an agency relationship created by inference has the burden and if only one inference may drawn from the evidence, the court may find the relationship as a matter of law.
5. Pg. 24—manifestation of consent—how did Block show that they were acting on behalf of the customers. Manifestation of consent by the principal that the agent acts on the behalf of them. This is just consent—no formalities like that with contracts are is needed to form such a relationship to subject liability. H & R promotes themselves as an agent. There role is similar to that of an insurance broker who acts as the agent for its customers seeking insurance. Here the facts show that H & R’s objective manifestatiosn mutually consented to and intended to form a principal-agent relationship, the scope of which included obtaining the tax refund quickly.
6. Courts do not understand that is all that is needed is consent—pg. 29. An agent is a person authorized by another to act for him, one entrusted with another’s business. What is the problem with the courts that are not buying this definition?

1. Same representation made by Block as in Greene and here the t.c. granted summary judgment to the plaintiffs on the issue on the agency relationship.
2. What is the law here: whether Block had an agency relationship with Basile and the rest of the class. What did the court look at the Rest to see if the three elements were met: (1) the manifestations by Basile that Block would be acting for her and Block’s accepting of this and understanding that Basile is the principal. Is it the same as Greene? (consent and control)—does this court rely on factors? No, Greene is not quite in reasoning.
3. Understanding of the principal that the agent is in control? Why did the court say that there was no agency in this case? There is no evidence of agency here? For one, the court said that all that Block was doing is being a facilitator to the loan and did not have the authority to alter the legal relationship.
4. Consent of principal; consent of agent; and control are the elements. Consent of the principal here was not met. (pg three: there is no showing that the customers(appellees) intended Block to act on their behalf in securing the refinancing but Block did so, so then on whose behalf did they act? Simply introducing them to loan did not create an agency relationship. There was showing that appellees intended Block to act on their behalf in securing the loan. They did not know it was a loan so if they did not know it was loan, how can they expect them to act on their behalf.
5. A person deciding to get a loan would go to a bank, customers here did none of that because Block did it for them, Court seems to say that because they did not make the decision, they did not have a control—Ricks thinks that this is wrong because Block did everything for them.
6. Other than the three elements what is another one: trust and loyalty.
7. The ability to alter the legal relationship—the law is clear in Pa.—agency results only if there is an agreement of fiduciary relationship. They must agree to have such relationship. They must also have the ability to alter the legal relations of the principal (Basile)—Block has the ability to alter the legal relationship of the principal and another, such as the bank. Can Block alter the legal relations of its customers? Yes. What about between customers and the IRS. Here Block is discharging a duty of the customers to the IRS by turning in the tax returns to the IRS so they are in effect altering the legal relations, aren’t they?
8. The Court said that not agency law should regulate the relationship here, but the market.
9. Which court is right? Are both courts wrong? Rick thinks that Block is an agent and grant summary judgment and he would say something like the fiduciary relationship does not allow the agent to act like an idiot but then hold for Block as a matter of law because the customer should have been more aware. He would carve out an exception in this case for "stupid" principals. Here the test for agency is met, say that they are an agent but the principal should not be able to recover. Thinks Basile does not make any sense. Should we change the agency test to make it make sense.
10. What are you if you are not an agent? Some courts will call them independent contractor thus not servants. Might be lessor, lessee, Buyer-seller; dealer and purchaser.

1. Powers of Attorney:

1. Actual authority: has been defined as the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestatiosn of consent to him.
2. See notes pg. 127-28.

1. The Firms Liability in Contract for Acts of Its Agents:

1. Facts: Kapperman owns a Gailon road grader that had a defective engine.

Appellant Schladweiler offered to purchase the grader for the sum of $8500 and Kapperman said that he would pay up to $3000 to have the engine repaired and Schladweiler said that hecould have repaired for less than that and it was discovered that it was not repairable and suggested that Schladweiler purchase a new engine—Kapperman was not interested in spending this amount and tried to locate an engine that could be rebuilt. Schladweiler claims that he is an agent and should not be liable thus, Kapperman should be liable. Trial court found for Truck Repair who is the one Schladweiler brought the engine to. Truck Repair spent months of time and money to repair the engine and did not discuss the increased costs with Kapperman and Kapperman only authorized $3000. The total cost was more than $6000. Neither Kapperman or Schladweiler paid the bill. Truck repair wins. Kapperman has to pay the money even though he never dealt with Truck Repair because there was an actual agency relationship between Kapperman and Schladweiler for $3000 but Schladweiler when agreeing to this amount represented Kapperman to Truck Repair however Schladweiler exceeded the scope of his agency authority when he authorised the repairs exceeding the authorized amount.

2. An agency relationship is the representation of one called the principal by another called the agent in dealing with third persons. This relationship is either actual or ostensible. It is actual when the principal appoints the agent and it is ostensibel when the principal by conduct or want of ordinary care cuases a third party to believe another, who is not actually appointed to be his agent.
3. This court states that they examine the relations of the parties as they exist under their agreement or acts: agency is a legal concept which depends upon the existence of required factual elements: the manifestation by the principal that the agent shall act for him; the agent’s acceptance of the undertaking; and the understanding of the parties that the principal is to be in control of the undertaking.
4. Here Kapperman made no representations or actions to cause Truck Repair to belive that that was his agent—thus this is not an ostensible agency. The only proof supporting an agency relationship in excess of the $3000 was the words and actions of Schladweiler. Ostensible agency for which a principal may be held liable must be traceable to the principal can cannot be established solely by the acts or declarations or conduct of an agent.
5. There is an actual agency relationship between Kapperman and Schladweiler but only to the extent of $3000.
6. Rule: when an agent exceeds his authority, his principal is bound by his authorized acts so far only as they can be plainly separated from those which are unauthorized.
7. So here Schladweiler who exceeded his agency relation is liable to Truck Repair for the extent in which he exceeded his agency.
8. Authority is the agent’s power to bind the principal by acts done in accordance with the principal’s manifestations of consent to the agent.
9. A principal is bound by the authorized acts of his or her agent in entering into contracts on the principal’s behalf. Only under certain circumstances will agents have the power to bind the principal by unauthorized acts such as where the agent has apparent authority or inherent agency power or where the principal is estopped from denying the agent’s authority.
10. Therefore when an agent enters into an unauthorized contract without having the power to bind the principal, the principal is not bound by the contract as actually made by agent.
11. At common law a principal is not bound by the authorized contracts of his or her agent where the contract is under seal or is a negotiable instrument.
12. A principal must ahave the capacity to give legal consent as well as the capacity to do the act that he or she is authorizing the agent to do.
13. Business entities such as corporations, partnerships, and limited liability companies can be principals but must act through human beings, the entitles are the principals and their human reps are agents, servants or ics.
14. To be an agent, a person needs only the physical or mental capability to do the thing that he or she has been appointed to do. Even an infant or a mentally incompetent person might have the capacity to bind a principal to a contract.
15. See notes: pg 27. An agent holds a power to alter legal relations between the principal and third persons and between the principal and himself. An agent is a fiduciary with respect to matters within the scope of his agency. The principal has the right to control of the agent with respect to matters entrusted to him.
16. The inquiry begins whether there is an agent. –whether to be able to alter legal relations between the principal and the agent.
17. Is there an intention by the parties to form an principal and agent relationship.

1. Express Actual Authority: King v. Bankerd:

1. the court said the poa won’t work because it did not meet statute expectations.
2. What is the approach to the Neo-classical Economics? Let the free market work and then when it does not work, the law will step in to correct whatever will not work and then will fix that which does not work.
3. Why do we have all of these regulations: certainty, lessen amount of litigation. Why do we have power of atty: why doesn’t a broad power of atty work? A power of atty is written doc by which one party, as principal, appoints another as as agent (atty in fact) and confers upon the latter the authority to perform certain specified acts or kinds of acts on behalf of the principal. This instrument creates a principal-agent relationship. The broad power of atty lacks the power to make a gift of the principal’s property, unless that power (1) is expressly conferred, (2) arises as a necessary implication from the conferred power, or (3) is clearly intended by the parties, as evidenced by the surrounding facts and circumstances.
4. There are restrictions on power of atty.
5. Broadly defined: a poa is a written doc by which one party, as principal appoints another as agent (atty in fact) and confers upon the latter the authority to perform certain specified acts or kinds of acts on behalf of the principal. This creates a principal-agent relationship.
6. One settled rules is that powers of atty are generally strictly construed and held to grant only those powers which are clearly delinated.
7. "convey, grant, bargain, and/or sell" –this includes gift doesn’t it? Yes, although the court thinks it is ambiguous and does not include "gift."
8. If you want your power of atty to make a gift you better expressly state it.
9. Accepted rule of construction is to discount or disregard, as meaningless verbiage, all-embracing expressions found in powers of atty. Ambiguities are resolved against the party that makes the instrument.
10. A general power of atty authorizing an agent to sell and convey property, although it authorizes him to sell for such a price and on such terms as to him shall seem proper, does not authorize the agent to make a gift of the property or to convey or transfer it without a present considerations inuring the principal.
11. Mr. Bankard did not intend for King to give the property to his wife because he made the power of atty specifically to keep from his wife from getting the property. King thought Bankard was dead and this is the rationale King used when he conveyed the property to his wife, this is completely stupid even though agency dies when the person dies. Therefore the facts and circumstnaces presented here do not give rise to any inference that King was authorized to make a gift of the property—that was not the intent of the principal.
12. Because gifts of the principal’s property are not, in the ordinary course of business, they are not within the scope of authority granged by the power of atty.
13. Suppose that after a principal has authorized an agent to act on the principal’s behalf in certain matters, the agent encounters unforeseen circumstances not covered by the principal’s instructions. Suppose further that it is impractible for the agent to communicate with the principal. Under Rest § 47, the agent would be authorized to take such acts as the agent" reasonably believes necessary to prevent substantial loss to the principal with respect to the interests communicated to the agent’s care.
14. Issue: whether a guardian may sue fro a divorce on behalf of an incompetent person? Majority rule in the case of a spouse who is mentally incompetent as to his property and person, and he may not bring an action for divorce either on his own behalf or thought a guardian.
15. Think about what actions a principal could not authorize an agent to do because they are too personal or violational? Like military service, voting, marriage, etc?

1. Neo-Classics Primer:

1. Every individiual necessarily labours to render the annual revenue of the society as great as he can. In doing so, he neither intends to promote the public interest nor knows how much he is promoting it. Most of the of the time, he intends only he his gain but by pursuing his own interest he frequently promotes that of sociiety more effectually than when he really intends to promote it.
2. The primary conclusion of classical economics is that "there is a sort of pre-established harmony between the good of all and the pursuit by each of his own selfish economic gain.’ This clonclusion rests on five premises: (1)people act in their own self-interest; (2) in the pursuit of self-interest, people act rationally; (3) people have access to perfect information (meaning information necessary to act rationally); (4) people and resources are freely movable; (5) there are no artificial restrictions on the marketplace.
3. This assumes all parties are rational and have access to perfect information.
4. There are objections to this paradigm: (1) no one can agree on what counts as wealth (though most decision makers are greedy enough to want money) to be wealthy enough not to care if other ends are not served; also, other ends are frequently served by other areas of law than transactional law; (2) if all of the assumptions of neo-classical economics were true, the courts would have no role to play at all. Parties would be able to maximize wealth w/o government intervention, and that is all anyone would care about. Therefore, in some ways the very existence of corporate law is contrary to neo-classical economics; (3) no one has access to perfect information. Thereofre, neither courts nor parties to transactions can decide clearly whether a transaction (or a rule employed in a decision) promotes wealth or not. Artificial restrictions on the market may exist, and some participants may begin with less wealth or information than others, creating inequalities in the marketplace that inhibit free bargaining; (4) people will act opportunisitically, meaning that they try to take advantage of others lack of perfect information, failure to act rationally, inability to move, articialy restrictions on the marketplace, or poorer distribution of wealth.

1. Implied Actual Authority: Mill Street Church of Christ v. Hogan (pg. 210). All forms of authority that are not express are necessarily implied ( either in-law or in-fact). Only actual authority can be expressly conferred upon an agent. The other kinds of authority—inherent and apparent/estoppel—necessarily arise by implication. Inherent authority is implied in law.

1. The Church contacted Bill to do some work on the church and when he reached a part that he could not finish by himself, he contacted his brother Sam to help him complete the job, Sam then fell off the ladder after it broke and broke his left arm. Sam filed a suit to recover worker’s comp and the Church argued that the doctrine of implied authority for the creation of a employment relationship between Sam and the church.
2. Issue: whether a person hired under the implied authority of an agent could be the employee for the purposes of the worker’s comp statute. The contract of employment can be either express or implied.
3. The court found that the Church had knowledge that Bill would have to hire a helper as he did in the past. Since he had hired his brother in the past, and had not been instructed differently this time, the church should be imputed with the knowledge if it is found that its agent had the authority to hire a helper.
4. Implied authority is acutual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necssary to carry out the duties actually delegated.
5. Apparent authority on the other hand is not actual authority but is the authority the agent is held out by the principal as possessing. It is a matter of appearance on which third parties rely.
6. employee includes agent. Sam here is an agent and employee of the church and gets to recover under Workers Comp.
7. Actual autority may be express or implied from principal to agent.
8. In examining whether implied authority exists, it is important to focus upon the agent’s understanding of his authority. It must be determined whether the agent "reasonably believes because of present or past conduct of the principal that the principal wishes him to act in a certain way of to have certain authority." Another factor to consider is the task or the job. The existence of prior similar practices is one of the most important factors. Specific conduct by the prinicpal in the past permitting the agent to exercise similar powers is crucial.
9. The burden is on the person alleging the agency and must show that it exists. Agency cannot be proven by a mere statement, but can be established by circumstantial evidence including the acts and conduct of the parties such as continuous course of conduct of the parties covering a number of successive transactions. One must look at what had gone on before to determine if the agent had certain authority. Then if considering past similar acts done in a similar manner, it is found that the present action was taken within the scope of the agent’s authority, the act is binding on the principal.
10. Here the agency is shown—Bill had in the past been allowed to hire his brother Sam and it was needed for Sam to help or someone for that matter because the church could not be painted by one person.
11. As a general rule, an agent is generally authorized to delegate the performance of incidental mechanical and ministerial acts but may not delegate acts which involve discretion or the agent’s special skill. §79 and 80 of Rest.
12. As opposed to agents, servants generally have no implied authority to delegate their responsibilities.
13. A subagent or subservant is not only the agent or servatn of the principal, but also the agent or servant of the apointing servant or agent.
14. §5 Comment a: an agent may be authorized to appoint another person to perform for the principal an act which the agent is authorized to perform or to have performed. The agreement may be that upon the appointment of such person the agent’s function as agent is performed, and that thereafter the person so appointed is not to be the rep of the agent but is to act solely on account of the principal in which case the one appointed is the agent and a not a subagent. However, the agreement may be that the appointing agent is to undertake the performance of the authorized act either by himself of by someone else and that in doing so will be the agent of the appointing agent, who will have the responsibility of a principal to that person. The appointed person is a subagent. The agreement here depends on the manifestations of the parties as interpreted by the usages between them, the customs of business and other circumstances.

è Note 2. Pg. 207à De Bueno v. Castro: upheld a transfer without consideration of real property owned by the principal, a foreign national, under a power of atty granting the agent the authority. Court held the power of atty could not be used to include conveyance of property without consideration. Ejusdem Generis: is specific language is before general then the general language is included in the specific—it does not go outside the instrument. Is this different than King v. Bankerd? Yes, here agent, principal, and beneficiary all knew the intent of the transfer and agreed that the transfer was consented to by the principal—the court here would not look at intent or surrounding circumstances as the King court did.

1. Rest2: §8: Apparent Authority: is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to such third persons.
2. Rest2 §26: Creation of Authority: General Rule: except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way, authority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted causes the agent to believe that the principal desires him so to act on the principal’s account.
3. Rest2§27 Creation of Apparent Authority: General Rule; except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way , apparent authority to do an act is created as to a third person by written or spoken workds or any other conduct of the principal which, reasonably interpreted, causes the third person to belive that the principal consents to have the act done on his behalf by the person purporting to act for him.
4. Hamilton v. GAF [pg. 236]è Issue: whether Bajt, an agent of GAF, had the authority to execute a contract on behalf of GAF: the contract in question required GAF, a manufacturer, to purchase a minimum of over $800,000 of raw materials annually from Hamilton for a period of ten years.

1. Bajt was a purchasing agent for GAF and his duties were to purchase raw materials but never as large as the contract at issue—in fact GAF’s internal policy, buyers at Bajt’s level had authority to make purchase orders not exceeding $25,000 in amount of one year in duration. Any K in excess of this, had to be approved in advance of GAF’s corporate headquaters. Bajt did not get this approval before signing the K. Hamilton is now holding GAF to the K.
2. Did Bajt have actual authority? No, if we were going to prove this, we would have depose an officer of GAF and Bajt. Bajt has to believe the principal, GAF manifested their intent for Bajt to act for them. There has to be manifestation of consent from the principal to the agent.
3. It is generally held that when a principal "holds out" another as possessing certain authority, thereby inducing others reasonably to believe that authority exists, the agent has apparent authority to act even though as between himself and the principal, such authority has not been granted. Apparent authority differs from actual authority in that the principal communicates directly with a third person to create apparent authority; to create actual authority, the principal communicates directly with the agent.
4. When a principal has by his voluntary act placed an agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform a particular act on behalf of his principal, the principal is estopped, as against such innocent third person, from denying the agent’s authority to perform the act.
5. The holding out of the agent’s authority by the principal party may be by action or inaction. The principal may directly communicate the authority to a third party or knowingly permit the agent to exercise such authority.
6. What does it mean to rely?
7. The third party must reasonably rely on the authority held out by the principal. The third party must know of facts demonstrating the principal’s consent to the agent’s actions.
8. Apparent authority exists only to the extent that it is reasonable for the third person dealing with the agent to believe that the agent is authorized.
9. Principal manifests to third party that agent has authority to act and the third party believes and relies on it, reasonably.
10. Also,The third party must actually believe the agent to be authorized. Apparent authority is that which a reasonably prudent man, using diligence and discretion, in view of the principal’s conduct would suppose the agent to possess.
11. The party who claims reliance on a agent’s apparent authority must not have closed his eyes to warning or inconsistent circumstances. Authority is not apparent simply b/c the party claiming has acted upon his conclusion nor simply because it looked so to him. It is where a person of ordinary prudence, conversant with business usages and the nature of a particular business acting in good faith and giving notice to all restrictions brought to his notice, would reasonably rely.
12. What did Hamiltons’ atty not do that should have been done: pg. 241—atty claims that Bajt’s authority came from his position--there was no evidence of any sort in this case as to the usual authority of the purchasing agents generally.
13. Where the agent has some present actual authority, apparent authority may arise in any of three ways. (1) it is the principal who is responsible for the information received by the third party; the principal must have intentionally caused the third party to belive that the agent is authorized to act for the principal or he should have realized his conduct would create such a belief on the part of the third party; (2) the information recriev by the third person may come directly from the principal by letter or word of mouth, from authorized statements of the agent, from docs or other indicia of authority given by the principal to the agent, or from third persons who have heard of the agent’s authority throught authorized channels of commication. Apparent authority can be created by appointing a person to a postion, like a manager which carries iwht it generally recognized duties. OR a person who permits another to do an act in such a way as to establish in a community a reputation of having authority to act, either by directing the agent to represent of by directing him to act.
14. Third persons who are aware of what a continuously employed agent has done are normally entitled to belive that he will continue to have such authority for at least a limited period in the future and this apparent authority continues until the third person has been notified or learns facts which should lead him to belive that the agent should not longer be authorized.
15. Establishment of apparent authority is by (a) direct, express statements; (b) by position; (c) prior acts.
16. If a principal puts an agent into or knowingly permits him to occupy a position in which according to the ordinary habits of persons in the trade or business, it is usual to have such authority, anyone dealing with him is jusitified in inferring that he has such authority in the absence of reason to know otherwise.
17. This is also true if a principal gives apparent authority by virtue of prior acts and gives an agent authority in that capacity will not be permitted to deny that such was his agent, authorized to do the act he assumed to do provided that such act was within the scope of the authority.
18. Apparent authority may result from prior relation of agent and principal. The principal by allowing the agen to carry out prior similar transactions may create the appearanc e of authority of the agent to carry out such acts. –"a person who permits another to do an act in such a way as to establish in a community a reputation for having authority to act, creates apparent authority with respect to those who learn of the reputation.
19. Here Bajt did not have apparent authority. There is no evidence to support Hamilton’s claim that he reasonably relied on Bajt’s authority.
20. A third person cannot reasonably believe the principal consents where the principal has not taken any action on which such a belief could be based.
21. The modern trend is to give the president of a corporate office both implied and apparent authority to conduct ordinary business transactions. Under both modern and traditional—the president may have apparent authority in looking at how the corporation runs its business, ie, by customarily permitting president to enter into ordinary business transactions.

1. Fennel v. TLB:

1. Fennel did not approve the settlement agreement and sues his atty. did the plaintiff’s atty have apparent authority to settle the case and the plaintiff was accordingly bound by the settlement agreement?
2. Client is the one who gets to choice or accept or reject the settlement agreement.
3. Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the "other’s manifestations" to such third persons.
4. In order to create apparent authority, the principal must manifest to the third party that he "consents to have the act done on his behalf by the person purporting to act for him.
5. Rule: a client does not create apparent authority for his atty to settle a case merely by retaining the atty.
6. Never settled before so there were no prior acts to go one before this time. What is the atty supposed to do when the atty says he has the authority to settle—you would not question that he can settle.
7. 1996—after Fennel—2d Cir says that atty of record who enteres into a settlement has the accordance to do so and the presumption in is favor of the atty who settled and the burden is one the other party to show that the atty did not have the right or authority to settle. What did Hogan say? What the parties have doen in the past which has been approved of and prior conducts and the nature of the task will make it okay.
8. 1997—NY—comment on Fennel—class action case—atty for plaintiffs (discrinmination case)—plaintiff joined race class and opted in the class by form and said she wanted to be in age class instead but never told the other side and the atty settled the one and not the other. She did not inform defendant, atty that she did not want to be part of the class that settled so she was bound by the decision.
9. He may ask what to here, start with Fennel and go with all other decisions—if you are a member of the Ethical panel –what would you do?
10. Note 1 pg. 244: the attorney in Hallock had the apparent authority to settle while the atty in Fennel did not because two months went by before there was any complaint. In Hallock the rule required that attys attending pretrial conferences have the authority to enter into binding court settlements on behalf of their clients, a co-plaintiff attened the conference from which Hallock was absent because of illness and more than two months passed before P’s made any objection to the settlement.
11. Some cases hold that where a party’s attorney announces a settlement in open court the settlement will be presumed valid unless the party can prove the attorney had not authority to settle.
12. Think about what facts you would want to know in determining whether a person had apparent authority.

1. Estoppel:

1. he intentionally or carelessly caused such belief; or
2. knowing of such belief and that others might change their positions because of it, he did not take reasonable steps to notify them of the facts.

1. Metalworking purchased from East Coast, a two wheel :wheelabrator" metalworking machine, for purchase price of $15,000. Metalworking left it in East Coasts possession for a period of time, who then sold It to Yoder. If we assume that transferor who had possession(East Coast) had title, this passed to Metalworkding and had no title to sell or transfer.
2. What about the problem—pg. 246—(a) thief stole stereo from Owner, and sold to Merchant—Owner will not get it back and there is more than mere possession here; (b) Owner left the stereo with Merchant to be repaired—what is the difference—what makes the buyer reasonable? Yoder in thecase is buying from a Manufacturer of Wheelbrator. If you won a stereo and leave a stereo with seller and then the seller will sell it later—Buyer who buys it later—even though stereo was only there for fixing—then the buyer did not have any reason to believe that the seller’s authority is limited. Suppose a thief brings it in to the store—has the owner made a manifestation to third party that the store is to sell—no, only if the owner brings it in.
3. Assuming as we must that the transferor East Coast had title, t his passed to Metalworking and no title remained in East Coast. It is clear that Yoder in fact acquired no title since when transferred to them, East Coast had no title.
4. There needs to be some affirmative act on which to base estoppel. There is no affirmative act here by Metalworking, it simply left the machine in situs and did nothing actively to give East Coast with any authority to sell.
5. The issue narrows to the question whether or not simply possession by East Coast with permission by Metalworking without more and without respect to the duration of possession is a sufficient basis for estopping Metalworking form asserting its title?
6. Although mere possession and control of personal property are not ordinarily sufficient to estop the real owner from asserting his title against a person who has dealt with the one in possession on the faith of his apparent ownership, slight additional cirumstances may turn the scale against the owner and estop him from asserting title against one who has purchased the property in good faith.
7. Here in this case there is nothing but possession involved—there is no indicia of ownership nor title documents in hands of Metalworking to transfer title to Yoder.
8. There must be a merchant of a specific type—there MUST be more than simple possession to create an apparent authority to sell.
9. Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business. \
10. Notes: pg. 248: Difference btween apparent authority and estoppel: A person who is not otherwise liable as a party to a transaction purported to be done on his account, is nevertheless subject to liability to persons who have changed their positions because of their belief that the transaction was entered into by or for him, if: (a) he intentionally or carelessly caused such belief; or (b) knowing of such belief and that others might change their positions because of it, he did not take reasonable steps to notify them of the facts.
11. Estoppel differs from apparent authority in a couple of ways: First, estoppel can be based on omissions, not just affirmative conduct. That includes situations in which the principal is aware that third parties might believe someone to have authority, and the principal fails to act reasonably to protect third parties. Second, while merely entering into a K based on a reasonable belief of authority is sufficient to invoke apparent authority, it is not a change in position sufficient to invoke estoppel. Thus, in estoppel, while the conduct necessary to charge a principal is lower than in apparent authority, the third party must show something additional: a detrimental change in position.
12. Distinction of detriment in estoppel. Reliance in Estoppel means change of positions and reliance in apparent authority means simply entering into a K. Principal tells third party that he is hired an agent for sale of house, agent and third party sign and then the principal wants out—Principal has told the third party that agent has authority but not told the agent that? Apparent authority here applies—what about estoppel? No, there has not been a change of positions from the third party even though they have signed the K.
13. Actual authority depends on statement from principal to agent—rests on consent. Estoppel rests on change of position by the third party—then does consent matter if you need the change of position of third party—No—it is different. What about apparent authority—does it require harm to be done? No, it rests solely on consent—in the Rest.
14. The line between apparent authority and estoppel is not all that clear and sometimes the courts mix the two and call it a single doctrine called "ostensible authority."

1. Hypo: When a seller takes stereo equipment to fix it and then sells it, the buyer who in good faith buys the stereo in good faith owns the stereo and has all the rights. Apparent authority is what the seller here has.—it is not real authority. Principal’s liability to the third party but what about the agent’s liablility to the principal? Agent signs a K by apparent authority against the principal wishes, it seems as though the agent should be liable, doesn’t it? This will come later in the class.
2. Goldstein v. Hanna:

1. Goldsteins sued respondent Hanna to compel specific performance of an option to purchase Hanna’s condo. The parties entered into a lease relating to the condo and this lease granted the Goldsteins an option to purchase to condo. The Goldsteins had no direct dealings with Hanna but then exercised their option to purchase—three days before their escrow with Hanna was due to close, the Goldstein’s contacted Mr. Callahan. They advised Callahan Realty that they would purchase the condo themselves, rather than find another purchaser.
2. Callahan said that their was no ultimate purchaser and Hanna testified that he never said Callahan to extend the excrow and Goldstein came away from the interview that Hanna agreed with Callahan and then Hanna tried to buy Goldstein’s out and then Hanna refused to participate in the escrow to allow Goldstein’s to purchase.
3. What did the lease mean? Did it expressly say in the lease that the option would be extended? Did the court give Goldsteins’ a right that was not in the lease. The court found that the doctrine of equitable estoppel clearly precludes Hanna from claiming that the Goldstein’s rights under the lease-option agreement expired on Aug, 29, 1978.
4. Under the Rest 2d § 8B: An equitable estoppel arises under the following circumstances: A person who is not otherwise liable as a party to a transaction purported to be done on his account, is nevertheless subject to liability to persons who have changed their positions because of their belief that the transaction was entered into by or for him, if: (a) he (principal) intentionally or carelessly caused such belief on which the third person relies and changes position; (b) knowing of such belief and that others might change their positions because of it, he did not take reasonable steps to notify them of the facts. The third person must reasonably rely.
5. Where there is a duty to speak, silecne can raise an estoppel quite as effectively as can words. A Duty to speak arises when another is or may come under a misapprehension regarding the authority of the principal’s agent.Under such circumstances, the principal is obligated to exercise due care, and to conduct himself as a reasonably prudent business person with normal regard for the interests of others.
6. What did Hanna do to cause a belief in Goldstein, the third party? The silence and Hanna had a duty to speak. You can case a belief in a third party by silence. This comes up in contract performance.
7. Rule: A person remaining silent when he ought, in the exercise of good faith, to have spoken, will not be allowed to speak when he ought, in the exercise of good faith, remain silent.
8. In the case of fraud, it sometimes can be actional fraud when there is misrepresentations.
9. What did the Goldsteins do to rely and change their positions? They passed up an opportunity because they thought they had more time, they acted reasonably.
10. Silence is sometimes evidence from which assent can be inferred. In the instant case, during his telephone conversation with Callahan, Hanna made no effort to assure that the Goldstein’s were not misled or lulled by his agent’s representations. Hanna knew the Goldsteins might not hasten to compel the Aug escrow while assuming they still had several months to exercise the option. Consequently, Hanna’s silence and acquience in his agent’s representations manifestly caused the Goldsteins to do what they otherwise would not have done, i.e., to permit, at least argueably, a lapse of their valuable option rights. Here the detriment suffered by the Goldsteins involves the loss of the benefit of their bargain; the right to purchase the property for a specified sum—Here equitable estoppel steps in and precludes Hanna from claiming a forfeiture of the purchase rights.
11. Estoppel can be created by ommission where authority –there needs to be an act.
12. Persons ordinarily express dissent to acts done on their behalf which they have not authorized or of which they do not approve. The doctrine of equitable estoppel is properly invoked whenever "unconscionable injury would result from denying enforcement of the contract after one party has been induced by the other seriously to change his position in reliance on the contract.
13. Here the detriment suffered by the Goldsteins involves the loss of the benefit of their bargain: their right to purchase the property for a specified sum.
14. Here Hanna imbued his agent, Callahan with apparent authority to make the representations in which the Goldsteins relied. Apparent authority (when in excess of actual authority) proceeds on the theory of equitable estoppel; it is in effect an estoppel against the owner to deny agency when by his conduct he has clothed the agent with the apparent authority to act.
15. Here the doctrine of equitable estoppel precludes Hanna from claiming a forfeiture of the Goldstein’s option rights.
16. There has to be reliance upon what the principal himself has said or done or at least said or done through an authorized agent. The acts of the agent in question cannot be relien upon alone enough to support an estoppel. If his acts are relied upon there more also be evidence of the principal’s knowledge and acquiescence in them.
17. What would you counsel Mr. Hanna to do –if he did object after the phone with Callahan—he does not think Callahan is not doing him a good favor—tell Hanna that the principal has to call the third party—correct for the agent rather then saying that the agent did not have the power to begin with. So it is the principal that conveys all the power.
18. Callahan is accepted to act in one’s interest and that may be another reason that Hanna did not object.
19. Is the decision right? Perhaps—Ricks thinks it is—he would have said that when Callahan had the conversation—Callahan can interpret Hanna’s silence as implied consent because he had the authority.
20. Why do both Goldsteins and Hanna want the property? Make profit—because the property has gone up.
21. Note: pg. 252—Hodeson v. Koos---may an imposter cause liability for another on an agency theory? Yes. Make sure you get what you paid for before you pay. The proprietor’s duty of care and precaution for the safety and security of the customer encompasses more than the diligent observance and removal of banana peels from the aisles. The duty of the proprierot also encircles the encircles the exercise of reasonable care and vigilance to protect the customer from the loss occasioned by the deceptions of an apparent salesman. The rule that those who bargain without inquiry with an apparent agent do so at the risk and peril of an absence of the agent’s authority has a patently impracticable application to the customer’s who patronize our modern department stores. If the proprieroty of a place by his dereliction of duty enables one who is not his agent to act as one or create the appearance of being one, the proprietor will not be able to escape liability for the loss sustained by the customer.

1. Rest 2d §8A: Inherent Agency Power: Inherent agency power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.
2. Dupis v. Federal Home Loan

1. Margaret Dupis signed a promissory note to Fidelity for $156, 000 and she secured the note with a mortage on her home—Fidelity sold off the note to FHMLC, and Fidelity seviced the loan until it went bankrupt. Dupis was unaware of the FHMLC assignemtn and servicing agrement until then—she never received the reamining amount for home improvement escrow.
2. The parties agreed that Dupis had no knowledge that FHMLC owned her note and mortgage until after the bankruptcy. Fidelity did not have apparent authority.
3. If the principal is undisclosed, and A is a general agent, and A is not doing what he is supposed to be doing or not doing—is the principal liable? Yes.
4. Inherent agency power—is used to indicate the power of an agent which is derived not from authority, apparent authority, or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.
5. A principal which will explain the cases can be found if it is assumed that a power can exist purely as a product of the agency relation. Because such power is derived solely from the agency relation and is not based upon principles of contracts or torts, the term inherent agency power is used to distinguish it from other powers of an agent which are sustained upon contract or tort theories.
6. As a matter of agency law, it would be unfair for FHMLC to have the benefit of Fidelity’s servicing of the note and mortagage without also making FHMLC responsible for Fidelity’s excesses and failures.
7. The real issue here is whether Fidelity should be treated as a general agent—The restatement gives two choices: general agent which is an agent authorized to conduct a series of transactions involving a continuity of service. And special agent—which is an agent authorized to conduct single transaction or a series of transactions not involving continuity of service.
8. Continuity of service rather than the extent of discretion or responsibility is the hall-mark of the general agent. One who is an integral part of a business organizations and does not require fresh authorizations for each transaction is a general agent.
9. Fidelity is a general agent for FHMLC with respect to servicing the loans it sold to FHMLC.
10. Rule: A general agent for an undisclosed principal authorized to conduct transactions subject his principal to liability for acts done on his account, if usual or necessary in such transactions, although forbidden by the principal to do them.
11. Fidelity must be considered a general agent and that FHLMC, as an undisclosed principal, is subject to liability on agency law principles for Fidelity’s breaches of contract.
12. Notes;pg. 259: Restatement Section 8A indicates that inherent agency power is distinct from actual authority, apparent authority, and estoppel to deny authority and derives solely from the general agency relationship itself. Consider the Rest section 161 which states the circumstances in which an agent acting for a disclosed or partially disclosed principal will be liable for unauthorized acts of a general agent: Unauthorized Acts of General Agents: A general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on his account which usually accompany or a incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasoanbly believes that he agent is authorized to them and has no notice that is not so authorized.
13. This case is important because even though the Merrial Doctrine lets off the hook FHMLC—other lenders will be liable. Pg. 258. Merrill Doctrine: Government is not partly public or partly private, depending upon the governmental pedigree of the type of a particular activity of the maaner in which the Government conducts it. Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. Congress establised the FHMLC with specific powers and the FHMLC has within those powers explictly limited the authority of its agent. "created as a corporate form especially created by Congress for defined ends."She is getting a windfall because of this doctrine—isn’t she? We are streching the benefits of beyond all bounds.
14. §194 Acts of General Agents: a general agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account, if usual or necessary in such transactions, although forbidden by the principal to do them.
15. 195. Acts of Manager Appearing to be Owner: an undisclosed principal who entrusts an agent with the management of his business is subject to liabilityu to third persons with whom the agent enters into transactions usual in such businesses and on the principal’s account although contrary to the directions of the principal.
16. The principal has to do something to cause the third party to believe in apparent authority—note—pg. 263 Spears had the inherent agency power to bind Zanac--- Should Zanac be liable for the person whofixes the neon sign—no apparent authority here because at no time did Zanac manifest to Frazier that Spears was authorized to contract for the servies rendered. Nor may Spears auhtority to contract be inferred from his authoirty to solicit bids for the job. Inherent agency power was reasonable because of Spears position and he was authorized to do things that had to be doen with the restaurant. Spears, is the general agent for a partially disclosed principal, may bind the principal under his inherent agency powers. He was the one that was doing all the dealings and Zakas said that it was okay to go ahead and repair the sign. In a case like this, this is tiny little thing—if they were going to redo the store this would be different—this is such minor thing and don’t make repairman to have to figure out who owns everything before they repair—to do this would make the business slow, wouldn’t it? There would be a problem if you had to go to the board of directors or the president of the corp every time you had to make an incidental repair or do a every day business repair or affair. Incidental business transactions should be able to be undertaken as was here under inherent agency power.
17. Does an agent have the inherent authority? This could be an exam question. See notes—pg., 260—261—what are the limitations on the agent’s authority—the third party must reasonably believe. Note 3: pg. 259: geneneral agency duties. Is the contract an usual one—does the third party know that the agent has limitations.

1. Rest 2d §82: Ratification: ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as t o some or all person, is given effect as if originally authorized by him.
2. Affirmance: Botticello v. Stefanovicz—pg. 427

1. Stef, defendants acquired as tenants in common a farm situated in the towns of Colchester and Lenanon. Mary would not agree to sell for less than $85,000. The issue is whether Walter, the husband acted as an agent for Mary—the trial court said that she did and the trial court found for the plaintiff. –Mary was bound by the contract executed by her husband because she ratified its terms by her subsequent conduct—the trial court found this.
2. Ratification is defined as the "affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account. Ratification requries acceptatnce of the results of the act with an intent to ratify and with full knowledge of the material circumstances.
3. The trial court finding neither indicates an intent by Mary to ratify the agreement, nor establishes her knowledge of all the material circumstances surrounding the deal. At most, Mary observed the P occupying and improving the land, received rental payments from time to time and knew that the use, occupancy, and rentals were pursuant to a written agreement she had not signed. None of these facts are sufficient to support the conclusion that Mary ratified the agreement and bound to its terms.
4. It is undisputed that Walter had the power to lease his own undivided one-half interest in the property—Judgement against Mary is set aside and the court here reversed and held that Mary never authorized her husband to act as her agent for any purpose connected with the lease and option to purchase agreement, so recovery against her is precluded.
5. Botticello can stay there on Walter’s half but Walter cannot deprive Mary of here use and enjoyment of the land. Did Walter act for Mary? No.
6. Marital status cannot in and of itself prove the agency relationship. The fact that one spouse tends more to business matters than the other does not, absent other evidence of agreeement or authorization, constitute the delegation of power as to an agent.
7. Since Walter at no time purported to be acting on his wife’s behalf as is essential to effective subsequent ratification, Mary is not bound by the terms of the agreement and specific performance cannot be ordered as to her.
8. Difference between this case and Goldstein v. Hanna: Mary knows about the negotiations and she never objects and she thinks that Walter might have sold the property and she knew that they had thought about it. It is more reasonable here for Mary to have known something and she should have objected to keep her property rights. Is it reasonable for her object? Did she have to object? Did Mary know what was going on?
9. a woman wrote the opinion—is it a pro-woman decision? Maybe or maybe not.
10. Footnote in Rakeshaw—because of their marriage, she may be bound.
11. Why can’t Botticello claim that Mary is an undisclosed principal? He never said that he was representing her—why must the person acting as an agent say they are acting as an agent for ratification to occur or disclose a principal. Undisclosed principal is someone who the agent does not name or say that that the agent is acting as agent—you have an undisclosed principal when you act as agent without saying you are representing someone and it is partially undisclosed when the agent says I am acting as an agent for someone else who will remain nameless. For ratification, WALTER DOES NOT HAVE TO SAY THAT HE IS ACTING ON BEHALF OF MARY, HE ONLY HAS TO STATE THAT HE IS ACTING ON THE BEHALF OF SOMEONE EVEN IF THAT SOMEONE REMAINS NAMELESS.
12. Why must he say at all that he is acting as an agent in a ratification case? There is an answer on note 1 pg. 429—we will be coming back to this issue.
13. May an undisclosed or partially disclosed principal ratify an unauthorized act? Under the Rest, a person (the ratifer) only has the right to ratify the act of another (the actor) where (1) the actor purported to act as an agent and (2) the actor either identified the ratifier as the principal or intended to act on account of the ratifier.
14. A principal may affirm a transaction either by electing to be bound or by conduct. As indicated in Botticello, one type of conduct constituting an affirmance is the knowing acceptance by the principal of benefits of the transaction. For acceptatnce of benefits to constitute affirmance, the principal must have no claim to the accepted benefits other than through or under the transaction in question.
15. A ratifier may elect to avoid an affirmance if at the time of the affirmance the ratifier was ignorant of any material fact involved in the affirmed transaction. Material facts are those which substantially affect the existence or extent of the obligations involved in the transaction.
16. In order to ratify, a principal must have been able to undertake the transaction both at the earlier time when the agent acted and at the later time of the act of ratification. For example, a principal cannot ratify a transaction which the principal could not have entered into at the time the agent acted.
17. Suppose an agent enters into an unauthorized transaction which the principal ratifies without indicating to the third party that the agent had acted without authority. Suppose further that the same third party again deals with the agent and the agent again exceeds authority in a similar fashion. The principal may be bound to the second contract on the basis of the apparent authority created by the manifestation to the third party that the agent had the authority to deal. What about if at the time of ratifying the first transaction the principal advised the third party of the lack of authority of the agent regarding the first transaction, would the principal then be bound on a second?

1. Rodrigues is a friend of Rakeshaw and Joyce and William discuss using Joyce’s personal property for collateral for business and William forged her name to a note when she no longer agreed to put up her personal property and the loan company gave the check and it was issued jointly and Joyce signed the check and Rodigues told the notary that he had seen Joyce sign the papers for the loan so he lied too. She then demanded stock and he refused so she went to atty and told him that the signature was forged and William let Joyce play some role in the business. She believes she had an interest. William’s appeal was dismissed for failing to file a brief.
2. The court notes that William’s paycheck was put in a joint account. Loan company sued her and she cross claimed against William and Rodrigues.
3. The issues the court deals with involved the application of traditional principles of agency law. Two basic rules are involved: (1) ratification by a person of an act purportedly done on his behalf not only creates the relationship of principal and agent but also constitutes approval by the ratifier of the purported agent’s act, relieving such agent of liability to the ratifier for the act; (2) forgeries can be ratified thereby relieving the wrongdoer agent of liability to the principal. Pg. 432.
4. Did Joyce ratify William’s act as her agent? Did William forge her name acting for the corporation. She is held responsible for the forgery because she knew about it and she did not do anything for three years so she ratified the forgery by not doing anything about it.
5. The ratification of an act of forgery by one held out to be a principal creates an agency relationship between such person and the purported agent and relieves the agent of civil liability to the principal which otherwise would result from the fact he acted independently and without authority.
6. An agency may be created, and an authority may be conferred, by a precedent authoritization of a subsequent ratification. Ratification is the voluntary election by a person to adopt in some manner as his own an act which was purportedly done on his behalf by another person, the effect of which, as to some or all persons, is to treat the act as if originally authorized by him. A purported agent’s act may be adopted expressly or it may by adopted by implication based on conduct of the purported principal from which an intention to consent to or adopt the act may be fairly inferrd, including conduct which is "inconsistent with any reasonable intention on his part, other than that he intended approving and adopting it." It is essential that the act of adoption be truly voluntary in character and there can be no adoption if the act, although voluntary, is done only because the purported principal is obligated to minimize his losses caused by the agent’s wrongful act or because of duress or misrepresentation by the agent.
7. It is well settled in Cal that a principal may ratify the forgery of his signature by his agent.
8. Joyce does conced that she became aware of the forgeries within a few days after endorsing the check so the requirement of knowledge of the material facts essential to voluntary ratification is satisfied. Joyce did not elect to rescind at a time when she was fully informed and had the powewr to do so, in fact it was not until three years after the discovery of the forgeries and a complaint filed against her did she seek relief. It appears that that she affirmatively endorsed the fraudlent acts of her husband in anticipation of benefits to be gained and sought to negate her endorsement only after benefits failed to materialize as anticipated.
9. Did Joyce elect to adopt forgery, she signed the check, she told atty and she did not do anything until her marriage failed even though she knew about it three years prior. She needs to have knowledge of the act before ratification.
10. Botticello—pg. 428: Ratification is defined as "the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account. Ratification requires acceptance of the reasults of the act with an intent to ratify, and with full knowledge of the material circumstances.
11. What about maintaining silence when you should have spoken? Silence by ratification—some intent to adopt the act must be shown.
12. Did William purport to act on behalf of Joyce? He is acting against her not for her when he forges her name when he knows she is against the loan—go back to the time that he did the act to see if he purported to act on her behalf. Generally, the effect of a ratification is that the authority which is given to the purported agent relates back to the time when he performed the act. Since he is considered to be an agent with authority at the time he performed the act, he does not incur liability for acts done within the scope of that authority. Purports to act on her behalf at the time he did the act in order to show ratification—he MUST be acting on her behalf at the time in order to establish the agency and principal relationship.
13. Forgies seem to be the paradigm of acting on their behalf because you are acting in their name and the other party does not know at the time it is a forgery.

1. A’s Towing v. Well Service:

1. Whether the phone call that Chevron says is unauthorized has been ratified—yes: (a) principal’s voluntary election to adopt the act (at the time of the phone conversations, they did not try to repudiate the contract nor soon after the conversation; (b) did Chevron have knowledge of the material circumstances? Yes; (c) intent to ratify? None of this is explicit—what is another explanation for the June letter—it is impossible that Chevron because they do a lot of business with P &A and so they did want to say anything—Chevron’s response is that they did not cancel. They did not want to cancel but they sent out a cancellation letter—why? Chevron may be thinking that they have do themselves because P & A is not doing anything so they might as well cancel and do it themselves. What is P & A’s response? P & A considered the contract cancelled but the letter does not mean that—consider it cancelled b/c P &A did not show up. Looks like between April and June that they did talk. Is there any reason to think that there is a time pressure to get this job done?
2. Why do we allow ratification at all—this is not apparent authority so why do we let it go ahead? What is this most like? This is an equitable remedy. If you elect to adopt the act which could benefit you, you cannot come back to say that you did not want it done. What is the doctrine about—what is the policy? Ordinarily a principal ratifies to protect the relationship with the third party such as a seller or another party—protects relationships with trust and builds up trust. Trust in manifestations—forming an agency relationship in the first place—whether it comes before or after the relationship does not matter—manifestations of consent will address this trust. Ratification and Waiver are the same—one is a postitive principle and one is a negative principle.
3. The law of La. Is that the unauthorized act of one purporting to bind a corporation may be implicitly ratified by the corporate principal through the knowing acquiescence of those having the authority, so long as the unauthorized act is not violative of the corporate charter or state law.
4. A ratification may be held to have occrured when corporate personnel with the authority to bind the corporation acquire, or are charged with knowledge of the unauthorized act and fail to repudiate it within a reasonable period of time.
5. Here Chevron acquiesced in the April 9 telephone cancellation of the contract thereby implictily ratifying it and adopting it as an act of the corporation. Chevron took not action in the ensuing weeks that was in any way inconsistent with a cancellation by telephone April9. Therefore, the individual who purported to cancel the contract is relieved of liability because Chevron ratified it. The record further shows that telephone cancellations with a follow up letter of cancellation was an accepted practice in contracts of this sort. Chevron personell with the authority to bind the corporation had knowledge of the telephone cancellation and failed to repudiate it within a reasonable period of time.
6. Note: under the Rest: silence or failure to act indicates affirmance "under such circumstances that, according to the ordinary experience and habits of me, one would naturally be expected to speak or act if he did not consent. Should it make a difference if the claimed affirmance relates to an act of a stranger as opposed to an actual agent exceeding the scope of his or her power to bind?

1. Partial Ratifications: pg. 440

1. In this action against defendant insurance company arising out of the compromise of a personal injury claim made with the company by plaintiff’s attorney without her consent, we must decide whether defendant was discharged from liability where its settlement draft after delivery to the atty was cashed on plaintiff’s forged endorsement and the proceeds of the draft appropriated.
2. Zurich is discharged from the debt—it is well settled that a client may ratify the unauthorized actions of his attorney, that a principal may ratify the forgery of his signature by his agent, and that a principal may ratify the unauthorized act of an agent by bringing suit based thereon.
3. Rule: pg. 443: if a principal ratifies part of the transaction, he is deemed to ratify the whole of it. The reason for this is because the Ratification is approval of a transaction already taken place.
4. A principal cannot split the agency transaction into separate parts, and take the benefits without the burden.
5. The principal has the power to approve the transaction only as it in fact occurred, not to reconstruct it to suit his present needs.
6. Rule: that where an agent authorized to collect a debt owing to his principal accepts in lieu of cash a valid check payable to the agent, the debtor is discharged upon payment of the check, although the agent absconds with the proceeds, since payment to the agent is equivalent to payment to the principal.
7. In Rest of Agency: "if an agent who is authorized to receive a check payable to principal as a conditional payment forges the principal’s endorsement to such a check, the maker is relieved of liability to the principal if the drawee bank pays the check and charges the amount to the maker.
8. The general rule against partial ratification does not apply to situations involving distinct or separate acts. In Rodigues, the acts of William were part of the same transaction. Here, in this case, although the atty had the power to bind Navides by his forgery of Navide’s signature, that forgery was a separate act and WAS NOT ratified by Navides’ ratification of the settlement. Whether Navrides has ratified the forgery is important in light of the relation back doctrine and the rule in Rakeshaw v. Rodigues, pg. 431, that a principal’s ratification of an agent’s unauthorized act exonerates the agent as against the principal.
9. Ratification exonerates the agent –so can Forsyth be sued by Ravides because of the forged settlement? No.

1. Clearly a corporation not yet in existence cannot authorize actions on behalf of itself.
2. Promoters are not personally liable for pre-incorporation contracts where the other party knows of the nonexistence of the corporation and agrees to look solely only to the corporation for payment or liability.
3. Here, there is no dispute that DDS knew at the time of signing that the corporation was not yet in existence. The issue then is the specificity of the agreement to look solely to the corporation.
4. As with any agreement, release of the promoter depends on the intent of the parties. This determination varies from state to state. Some jrds require that the contract show clearly on its face that there is no intent to hold the promoter liable before he is released. This court says that intent can be express or implied and the express words like, "I agree to release" do not need to be in the contract. The burden is on the promoter, as opponent to the agreement to show by preponderance of all essential facts, including mutual intent. Where the promoter cannot show an express agreement, existence of the agreement may be shown by circumstantial evidence but circumstances must be such as to make it clear by a preponderance of the evidence that the parties not only intended but did actually make, the alleged statement.
5. How many of you think that DDS is getting a windfall? Dissent states that Goodman was a licensed releator and was experienced.
6. Holding: where a promoter wishes to be released from liability for contracts he makes on behalf of a corporation not yet formed, he has the burden of proving the existence of an agreement to release him. There mere facts of contracting in the corporate name and payments made to the corporation are not sufficient to carry that burden.
7. When the corporation is formed it is considered to be an entity separate from its owner and the owner is not usually liable for the corporations actions.
8. If the corporation does not exist then the promoter becomes liable under the contract (pg. 168)-Exception: only if the other party has to know that the corporation does not exist at the time and agrees to only look to the corporation for liability or payment. This exception does not apply here –it is not enough to just sign on behalf of corporation. The signature line is not evidence that the parties actually agreed to only look at the corporation for payment.
9. He told them up front that he was going to form a corporation and therefore it can be presumed that DDS got an windfall.
10. Why is there a presumption that a person makes a contract with another—a contract has to be between two people,.They knew that there was no one on the other side when they performed and they thought they had agreement.
11. Where a corporation with knowledge of the agreement’s terms, benefits from a pre-incorporation agreeement excecuted on its behalf by its promoters, the corporation and the promoters are jointly and severally liable for breach of the agreement unless the agreement provides that performance is solely the responsibility of the corporation or subsequent to the formation of the corporate entity, a novation is executed whereby the corporation is substituted for the promoters as a party to the original agreement. Note pg. 169.
12. it is axiomatic that the promoters of a corporation are at least initially liable on any contracts they execute in furtherance of the corporate entity prior to its formation. The promoters are released from liability only where the contract provides that performance is to be the obligation of the corporation; the corporation is ultimately formed and the corporation formally adopts the K.
13. it is generally recognized that where pre-incorporation agreement merely indicates that it is undertaken on behalf of a corporation, the corporation will not be exclusively liable in the event of a breach. Under such circumstances the promoters of the corporation remain liable on the contract.\
14. Formation of the corporation following execution of the contract is a prerequisite to any release of the promoters from liability arising from the pre-incorporation agreement.
15. Mere adoption of the contract by the corporation will not relieve the promoters from liability in the absence of a subsequent novation.
16. Restatement Section 326: Unless otherwise agreed, a person who in dealing with another purports to act as agent for a principal whom both know to be nonexistent or wholly incompetent, becomes a party to such a K.
17. This rule –we presume that an existing contract was formed with existing party which keeps the promoter liable unless there is some intent expressly or impliedly intent to release the promoter form liability.
18. Notes on restatement –pg. 168—Know this comment.
19. Perhaps Goodmans lawyers should have argued that there was mistake and ask the court to reform the written agreement that the parties agreeed to let him go and only look to the corporation for payment.
20. IS THERE AN AGENCY RELATIONSHIP BETWEEN PROMOTER AND CORPORATION—NO! an Illinois court found that the relationship however is similar to that between an agent and a undisclosed principal.

1. issue here on appeal—is there an agency relationship and what effect does that have on the limitations? If there is an agency relationship, then it will not be applied and it will be tolled. In order for this to be true, Stotler and Co would have to make such represenation to Cange—they (Stotler) must be bound by Wilson’s statement in order to be estopped from claiming limitations.

1. How is Wilson the agent? He acted with authority. Defendant argues that Wilson lacked the apparent authority for his actions to estop Stotler and Co from asserting the bar of the limitations period. First, defendant argues that plaintiff has failed to show a single action on Stotler’s part to create apparent authority of Wilson but plaintiff need not prove any actions on Stotler and Co’s part besides its allowing Wilson to act as its agent for handling plaintiff’s account because the trier of fact could find Wilson’s statements within his inherent authority. Representations of the principal to the third party to central for defining apparent authority, but in contrast, inherent authority orginates from the customary authority of a person in the particular type of agency relationship and no representations beyond the fact of the existence of the agency need to be shown.
2. The trier of fact could find that it is within the customary authority of an FCM’s agent handling a customer’s account to make statements of the account’s correct balance and to promise refunds for lossess from unauthorized trades. The Plaintiffs reliance on such promises could be found reasonable..
3. P only need to prove any actions on Stotler and Co’s part besides its allowing Wilson to act as agent for handling p’s account because the trier of fact could find Wilson’s statements within his inherent authority.
4. Representations form the principal to the third party are central for defining apparent authority. But inherent authority originates from the customary authority of a person the particular type of agency relationship and no representations beyond the fact of the existence of the agency need by shown.
5. Unlike actual authority, inherent authority cannot be limited by secret instructions to an agent restricting his or her customary authority.
6. Two rules for inherent authority: one for disclosed principal or undisclosed—which applies? The disclosed principal because Cagne knows Wilson is acting on Stotler’s behalf. Wilson has to be a general agent for Stotler and then the acts must be usual or incidental. The third element is that the third party reasonably believes that the agent is authorized/---Cagne reasonably believed that Wilson was authorized to do the things that he did. Also, you can make the argument that Wilson was acting on behalf of the statute so it looked as though he was doing what he had authority to do.
7. Problem: pg. 266—See 757 P.2d 178: are sellers responsible for selling Agent’s misrepresentations? Yes, the court found it true on a respondeat superior theory (see pg. 270 note 3). How about on the theory of inherent authority: (a) is agent a general agent? Probably; (b) is the statement about the property being built up to code a usual statement that a agent would make when selling a hosue? Yes, this statement is one that most likely would be stated when selling a house and the third party did they reasonably believe that the seller’s agent was authorized to make such representations? Most likely it appears that they would have authority which is inherent. How about the argument that seller’s agent is not a general agent? Maybe because this is not a series of transactions but one singular transaction. What about on the theory of actual authority or apparent authority? It is possible that there is actual authority that the seller told its agent to lie, not likely but possible. How about apparent authority? Did the seller as prinicipal manifest to the purchaser that its agent has the authority to sell the house. You need the principal to manifest to the third party that the agent has the authority? This is not really likely here. Rule: When a principal has by his voluntary act placed an agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform a particular act on behalf of his principal, the principal is estopped, as against such innocent third person, from denying the agent’s authority to perform the act. Thus, based on this rule by placing the agent in the position, the principal may have indicated to the third party that the agent had the authority.
8. Generally, a principle may not be bound by the false representations of his agent made w/o his knowledge, consent, or authority. However, an exception to this rule exists if an agent has apparent authority to make a representation, the question whether such authority existed being one of fact. A princiapl may be held liable for the tortious conduct of an agent if the conduct was w/in the scope of employment. An agent is acting within the scope of employment if he is doing what is necessarily incidental to the work that has been assigned to him or which is customarily within the businesss in which the employee is engaged.

1. this sole issue in this appeal is whether the plaintiff, E. Udolf was entitled to coverage under certain employee dishonesty insurance policies issued by the defendants, Aetna, for the misappropriation of moneis by an employee of the plaintiff.
2. Leonard did not know but if corporation knows of Bjork’s misappropriation, it has to be imputed to it from its employees to corporations. Does the corporation itself know anything? No, because it is fiction—there is only constructive knowledge, no direct knowledge to the corporation because it is the employees that know.
3. When will a court impute the knowledge? It should have been imputed.
4. Rest: a principal is affected by the knowledge of an agent concerning a matter as to which he acts within his power to bind the principal or upon which it is his duty to give the principal information.
5. What about the bookkeeper—duty to report dishonesty? Probably.
6. Ricks says what the court does not talk about and what they should—pg. 416: adverse agency: this is an exception to the general rule that the actions are imputed. .
7. Circumstances where knowledge may be imputed typically involve questions of law rather than fact. The general rule is that whatever knowledge an agent acquires within the scope of his authority is imputed to the principal. However, knowledge and misconduct of an agent will not be imputed to a principal if an agent is "secretly acting adversely to the principal and entirely for his own or another’s purposes." The law does not then presume that the wrongdoer would perform his usual duty of disclosing all material facts regarding his action if such disclosure would reveal his fraud.
8. Rest also provides that a principal will be held to the knowledge of an agent who acts adversely to the principal if: the agent enters into negotiations within the scope of his powers and the person with whom he deals with reasonably believes him to be authorized to conduct the transaction; or , before he has changed his position, the principal knowingly retains a benefit through the act of the agent which otherwise he would not have received. The threshold determination then is whether the agent was "acting adversely" --
9. Pg. 396 rule: does not always have to be a manager or someone with control.
10. Does the adverse agent rule apply, if it does not then the rule on the bottom of page 394-95 will apply and the actions will be imputed to the principal.
11. No knowledge here of the stolen money is imputed because of the adverse agents: however, here why are they no adverse agents here: if they are not adverse agents,. Then it can be imputed to the principal.
12. Notes –pg. 396-398.

1. Notification: