business associations section 1b: agency: external relationships prof. amitai aviram...

Business associationsSection 1b:

Agency: external relationships

Prof. Amitai [email protected]

University of Illinois College of LawCopyright © Amitai Aviram. All Rights Reserved

F14D

Agency: external relationshipsOverview of Section 1b

1. A’s external relationships– P’s duties to agent– A’s liability to T in contracts– A’s liability to T in torts

2. P’s liability to T in contracts3. P’s liability to T in torts

© Amitai Aviram. All rights reserved.2

P’s duties to AContractual duties

• P’s duties to A are contractual in nature (Rest. 8.13, 8.14(1))• In addition to express terms of the agreement between P & A, P is

liable to A for:– Implied terms (Rest. 8.13)– Breach of duty to deal in good faith (Rest. 8.15)– Default terms re indemnification (Rest. 8.14(2))

• Implied terms– Terms that a reasonable person would infer from the express language of the

agreement


P’s duties to ADuty of good faith & fair dealing

• Duty to deal fairly and in good faith (Rest. 8.15)– Protects agreed common purpose & A’s justified expectations

• Common application (1): frustrating A’s justified expectations– P must avoid unreasonable conduct that harms A, when:

• Contract lacks specific language governing the issue; and• Conduct frustrates purposes reflected in contract’s express language

– E.g., Prof agrees with RA that he will get an extra $100 if he shows up at prof’s office at 8am. Prof later changes mind, locks office doors so RA can’t enter office at 8am.

• Common application (2): duty to warn– P breaches duty if P fails to provide A with info about unreasonable risks

involved in the agency, if risk is foreseeable to P & A is unlikely to become aware of risk on his own

– Risks include physical harm, pecuniary loss, and possibly also harm to business reputation & reasonable self-respect• E.g., P sends A to sign up investors for an investment that P knows (but A doesn’t

know) is a Ponzi scheme. When A is implicated in the Ponzi scheme, his business reputation is tarnished and he cannot get another job. P may be liable to A for the harm suffered by A. © Amitai Aviram. All rights reserved.4

P’s duties to ADuty to indemnify

• Indemnifying agents – default rule (Rest. 8.14(2))– When the agent makes a payment

• within the scope of the agent's actual authority, or• that is beneficial to the principal, unless the agent acts officiously in making the

payment– Officious (“voluntary”) payments are ones in which the agent has a reasonable

opportunity to receive P’s authorization, but makes a payment without seeking authorization

– When the agent suffers a loss that fairly should be borne by the principal in light of their relationship

• While this is vague, a duty to indemnify typically arises when A’s loss is:– In connection with the agency relationship; and– Not a result of A's own negligence, illegal acts, or other wrongful conduct


P’s duties to AReview: changes to Section 1a mini-case

• The buyer of Ann’s book turned out to be Tom. When Tom received the book, he noticed that it’s the exact same copy he saw at SPL (he did not know that the seller was the volunteer he spoke with at the sale). He went to Patrick to inquire how the book ended up sold online, and only then realized that Ann was the person who priced the book (at what seemed to be) prohibitively high, then took the book for herself. Outraged, he told Patrick that he was going to go to Ann’s home and shoot her. Patrick tried to discourage Tom from doing so, but Tom stormed out of the library.

• Two days later, Tom rang the doorbell at Ann’s home. When she opened the door, Tom shot Ann and ran away. Fortunately, Ann only suffered a minor injury from the shot, but medical expenses amounted to $5,000.

• SPL sued Ann for her pricing and purchase of the book. Ann counter-claimed against SPL for $5,000 in medical expenses. Discuss Ann’s counter-claim.


Agent’s liability to T in contractTypes of principals [Rest. § 1.04(2)]

• Determined at time that A & T interact

Principal Type T has notice that A acts on behalf of someone else

T has notice of P’s identity

Disclosed

Unidentified

Undisclosed


Agent’s liability to T in contractStatus based on P’s type

• Disclosed principal [Rest. 6.01]– P & T are parties to the contract; by default, A isn’t a party (unless A & T agree

otherwise)• Unidentified principal [Rest. 6.02]

– P & T are parties to the contract; by default, A is a party (unless A & T agree otherwise)

• Undisclosed principal [Rest. 6.03, 2.06]– If A acted with actual authority

• A & T are parties to the contract; by default: P is a party (unless excluded by the contract)

– If A acted without actual authority• A is liable to T under Rest. § 6.10 (see next slide)• P’s liability to T discussed in Section 1b2 (“special rule for undisclosed P”)

• Non-existent principal [Rest. 6.04]– P doesn’t exist (or has no capacity to contract), so P cannot be a party– By default, A & T are parties, if A knows/had reason to know that P did not

exist/lacked capacity– If A doesn’t know that P doesn’t exist then no contract exists, but A may be

liable for breach of implied warranty of authority (see next slide)


• Rest. § 6.10: If A purports to act as an agent, A gives T an implied warranty of authority

• Result: if P is not bound to T, A is liable to T for lacking power to bind P, unless:– P ratifies the act;– A gives notice to T that no warranty is given; or– T knows that A lacks actual authority

Agent’s liability to T in contractLiability for exceeding authority


• Rest. §7.01: Agency relationship does not absolve agent from liability for A’s tortuous conduct

• Rest. §7.02: A’s breach of a duty to P doesn’t make A liable to T

Agent’s liability to T in tortsRestatement principles [Rest. 7.01-7.02]



1. A’s external relationships2. P’s liability to T in contracts

– Actual authority– Ratification (retroactive creation of actual authority)– Apparent authority– Special rule for undisclosed principals (virtual apparent authority)– Estoppel

3. P’s liability to T in torts


Principal’s liability in contractFramework

• P is liable to T for a contract that A made with T on P’s behalf, if:

• Track 1– P & A have an agency relationship; and– A had authority to undertake the specific act

• Actual authority• Apparent authority• Ratification (retroactive creation of actual authority)• Special rule for undisclosed principals (“virtual apparent authority”)

• Track 2: Estoppel


Actual authorityElements [Rest. § 2.01/3.01]

1. A reasonably believes that s/he is authorized to act in a certain way;

2. This reasonable belief is traceable to manifestations by P• Rest. 2.02(1): A has actual authority for acts that are “necessary or

incidental” to achieving the principal’s objectives– Practical tip: if you find there’s actual authority for act Z under Rest. 2.01, you can

use Rest. 2.02(1) to expand actual authority to other acts that are “necessary or incidental” to act Z

• Hypo: Patty owns an apartment building & hires Andy to manage it– P tells A to hire someone to fix the elevators– A invites Tim to the manager’s office of the building, tells T he is Patty’s

apartment manager & hires T to fix the elevators– A also hires T to clean the apartment building (P said nothing about it)– T does jobs & bills P $60 for fixing the elevators, $40 for cleaning– P refuses to pay– T sues P for breach of contract. Discuss T’s suit.© Amitai Aviram. All rights reserved.14

Actual authorityExpress & implied actual authority

• Discussion of hypo– T knows A is acting for P, so P is a disclosed principal (Rest. 1.02(2)(a)). As a

disclosed principal, Patty is liable if Andy was her agent & acted with authority (Rest. 6.01)

a) Is Andy Patty’s agent? (Rest. § 1.01)b) Was the contract between A & T within A’s authority?

1. Actual authority? (Rest. § 2.01/3.01, 2.02)2. Apparent authority – relevant; will be discussed later3. Irrelevant (don’t discuss): ratification; rule for undisclosed P; estoppel

• Some case law calls 1st situation (fixing elevators) “express actual authority” or “express authority”, and 2nd situation (cleaning) “implied actual authority” or “implied authority”– This is an unnecessary distinction; both are actual authority


Actual authorityMill Street Church v. Hogan [Ky. 1990]

• Church hires Bill Hogan to paint the church building– Bill hires his brother Sam to help– Sam is injured while painting & seeks worker’s compensation

• This depends on whether Sam was a church employee, which in turn depends on whether Bill had authority to hire Sam

• Figuring out the players & their roles– Principal: Mill Street Church– Agent: Bill– Third Party: Sam

• Did Bill have actual authority to hire Sam?• Suppose that Sam believes that Bill was authorized

to hire him. Does this affect actual authority?


RatificationElements [Rest. § 4.01-4.08, 8.06]

1. Appropriate approver2. A’s behavior can be approved– Attributed to beneficiary– Appropriate scope3. Appropriate approval– Unambiguous– Informed– Timely

• Each of these elements was explained in detail in Section 1a3


RatificationEffect on future authority

• Ratification without notice to T that A was unauthorized may result in A having apparent authority in future similar acts– Modifying Hogan: Suppose that Mill St. Church told Bill expressly, in

front of Sam, that Bill may not hire Sam. Nonetheless, Bill hires Sam & they paint the church together.

– The church observes the job they did & realizes that hiring Sam was a good idea. The church tells Bill and Sam that it is ratifying the act of hiring Sam.

– Later, Bill hires Sam for another job. This time the church objects.– Did Bill have apparent authority to hire Sam the second time?

• Similarly, lack of notice to A that the act was unauthorized may result in implied actual authority– Assume that the church is forced to pay Sam for the second job. It sues Bill for

acting without actual authority.– Can Bill argue that he had actual authority to hire Sam the second time?


Apparent authorityHypo

• Patty hired Andy to manage her apartment building. She specifically told him not to hire anyone to clean the building. Nonetheless, Andy hires Tim to do so.– It is customary in that region that apartment managers have the power to

hire janitors to clean the buildings they manage– Is Patty bound by the contract with Tim?

• Is Andy Patty’s agent? Yes• Does Andy have actual authority?• Does Andy have apparent authority?

Patty Andy

Tim


Apparent authorityElements [Rest. § 2.03/3.03]

1. T reasonably believes that A is authorized to act in a certain way; and

2. This reasonable belief is traceable to manifestations by P

• Mirrors the elements of actual authority, except that apparent authority is concerned with T’s reasonable belief (not A’s)

– Actual Authority [P»A]– Apparent Authority [P»T]

• Justifications– Access to evidence (fairness to T)– Preventing abuse by P

• Apparent authority binds P to T, but P can sue A if A exceeded actual authority (E.g., Patty can sue Andy for hiring Tim)

P A

T


Apparent authorityManifestations by A

• Manifestations by A don’t create actual or apparent authority, but can be circumstances in interpreting P’s manifestations

• Hypo: Pete & Angela talk with Tessa. Angela tells Tessa that she is Pete’s agent and has authority to hire Tessa. Pete hears this and says nothing.

– Assume that an agency relationship exists between P&A• Does Angela have apparent authority to hire Tessa?

1. T reasonably believes that A is authorized2. T’s reasonable belief is traceable to manifestations by P

• If Pete later sues Angela for his loss from having to honor the contract, does he win?

– Assume earlier P told A that she isn’t authorized to hire anyone


• What was the main issue in Lind?

• Issue 1: Agency relationship (Rest. §1.01)• Issue 2: Authority

– Actual authority?– Apparent authority?

1. T reasonably believes that A is authorized2. This reasonable belief is traceable to manifestations by P

Apparent authorityLind v. Schenley [CA3 1960]

Parties in Lind Role (P/A/T)?Lind Promoted to District ManagerPark & Tilford Lind’s companyHerrfeldt P&T’s VP & General Sales ManagerKaufman N.Y. Sales manager; Lind’s new boss


Undisclosed principalWhat’s the problem?

1. Tricking T into dealing with P– T is entitled not to deal with P, yet P can trick T by dealing

through A, without A disclosing she’s dealing on P’s behalf

• Solution - Rest. § 6.11(4): If A falsely represents to T that he is not acting on behalf of a principal, T is not liable if P or A had notice that T would not have dealt with P


Undisclosed principalWhat’s the problem?

2. Involuntarily asymmetrical relationship (T is bound; P is not)• Hypo

– P hires A to buy T’s Apple shares; agency agreement says A can’t pay >$1– A signs deal with T to buy shares for $200K (market price), not mentioning

she’s buying on P’s behalf• P’s option

– If Apple shares increase in price, P ratifies & closes the deal– If Apple shares decrease in price, P claims no liability (no actual authority &

apparent authority is not possible)• But A is a party to the contract (since it was w/undisclosed P)

– Given that A is liable, is it a problem that P is not?– Windfall for P vs. windfall for T


Undisclosed principalSolution under Restatement (2nd)

• Inherent authority– A minimum level of authority inherent in an agent regardless of

P’s manifestations• This concept was eliminated in Restatement (3rd)


Undisclosed principalSolutions under Restatement (3rd)

• Restatement (3rd) § 2.06(1):– Undisclosed P liable to T, if T was justifiably induced to make a

detrimental change in position by A’s unauthorized acts, and P had notice & didn’t take reasonable steps to notify T

– This is estoppel (will be discussed later in this section)• Restatement (3rd) § 2.06(2):

– Undisclosed P “may not rely on instructions given an agent that [limit A’s] authority to less than the authority [T] would reasonably believe [A has] under the same circumstances if [P] had been disclosed.”

– I call this “virtual apparent authority”: acts that would have had apparent authority if T knew A was an agent are considered part of the actual authority


Undisclosed principal“Virtual apparent authority”

• Reconsider hypo: P hires A to buy T’s Apple shares; agency agreement says A can’t pay >$1; A signs deal to buy T’s shares for $200K (market price), not mentioning she’s acting on P’s behalf– Rest. 2.06(2): Undisclosed P “may not rely on instructions given an agent that

[limit A’s] authority to less than the authority [T] would reasonably believe [A has] under the same circumstances if [P] had been disclosed.”

• If T knew that A was acting on P’s behalf, would T reasonably believe that A had authority to offer $200K?– Probably yes – it would be reasonable for T to believe A was authorized to offer

the market price for the house• Now change the hypo, so that A offers $2M (x10 market price)

– If T knew that A was acting on P’s behalf, would T reasonably believe that A had authority to offer $1M?

– Maybe not – would at least raise a “red flag” as to agent’s authority (similar to Lind)


EstoppelWhy do we have estoppel?

• Hypo: Patty owns an apartment building; she doesn’t hire Andy as an agent

• Nonetheless, Andy meets with Tim in the manager’s office of the building, represents himself as Patty’s apartment manger & hires Tim to clean the building

• Tim does the job. Andy disappears. Tim sues Patty to recover the promised payment.

• Is Patty liable to Tim?– Can Tim claim liability based on apparent authority?


EstoppelThe rule

• Restatement §2.05: In a transaction between an actor (A) and a third party (T), which the actor purportedly did on behalf of another person (P), P is liable to T if:– T “justifiably is induced to make a detrimental change in position

because the transaction is believed to be on [P’s] account”and either:

• P intentionally or carelessly caused such beliefor• Having notice of such belief and that it might induce others to

change their positions, P did not take reasonable steps to notify them of the facts

• Estoppel can only bind P (T is not bound)


EstoppelThe hypo reconsidered

• Patty owns an apartment building; she doesn’t hire Andy as an agent• Nonetheless, Andy meets with Tim in the manager’s office of the

building, represents himself as Patty’s apartment manger & hires Tim to clean the building

• Tim does the job. Andy disappears. Tim sues Patty to recover the promised payment.

• Is P liable to T due to estoppel?– T makes detrimental change in position

• An expenditure of money or labor, incurrence of a loss, or subjection to legal liability, but not loss of the benefit of a bargain

– T’s change in position is due to being justifiably induced– P either

• intentionally or carelessly caused such belief?• had notice of T’s inducement & didn’t take reasonable steps to notify T


EstoppelHoddeson v. Koos Bros. [N.J. Super. 1957]

• Hoddeson went to the Koos Brothers furniture store– At the store, she was helped by “a tall man with dark hair frosted at the

temples and clad in a gray suit”– He accepted her order & received money

• The man was not an employee of Koos Brothers– When Hoddeson discovered the fraud, she sued the store– Is the store liable due to apparent authority?– Is the store liable due to estoppel?

• T makes detrimental change in position• T’s change in position is due to being justifiably induced• P either

– intentionally or carelessly caused such belief?– had notice of T’s inducement & didn’t take reasonable steps to notify T


Estoppel‘Best Buy’ prank

– ~ 80 ‘fake employees’http://www.improveverywhere.com/2006/04/23/best-buy/



1. A’s external relationships2. P’s liability to T in contracts3. P’s liability to T in torts

– Direct liability– Vicarious liability: employee– Vicarious liability: scope of employment– Vicarious liability: torts involving apparent authority


P’s liability to T in tortsTypes of tort liability

• Principal’s direct liability (P liable because of a combination of A’s acts & P’s acts) [7.03(1)]– A acted w/actual authority or P ratified A’s conduct [7.04]– P negligent in selecting/supervising/controlling agent [7.05]

• Principal’s vicarious liability (P liable solely because of A’s acts + agency relationship) [7.03(2)]– Tort committed by employee acting within scope of employment

[“SoE”] [7.07]– Tort committed by A acting with apparent authority [7.08]


P’s liability to T in tortsP’s tort liability for A’s acts

• Is A an agent of P?– No - P is not liable in agency law for A’s tort– Yes - Is A liable to T in torts?

• No – P is not liable on an agency theory, unless P would be liable if he committed A’s acts [7.04(2)]

• Yes – Is P directly liable for A’s conduct?» A acted with actual authority [7.04]» P ratified A’s conduct [7.04]» P negligent in selecting, supervising or controlling agent [7.05]

– Yes – P is liable to T in torts– No – Is P vicariously liable for A’s conduct?

» See next slide


P’s liability to T in tortsP’s tort liability for A’s acts

• Is P vicariously liable for A’s conduct?– Yes – Is A an employee of P? [7.07(3)]

• Yes – Was the tort committed within A’s scope of employment? [7.07(2)]– Yes – P is liable for A’s tort [2.04, 7.07(1)]– No – Go to next bullet [↓]

• No – Did acts that A took with apparent authority constitute a tort or enable A to conceal a tort’s commission?

– Yes - P is liable for A’s tort [7.08]– No - P is not liable in agency law for A’s tort


Direct liabilityGrounds for direct liability

• P is directly liable to T in torts for A’s conduct when:1. A’s conduct within A’s actual authority/ratified by P [7.04(1)]

• E.g.: P gave instructions that A believed, and a reasonable agent would also believe, authorized the tortuous conduct

2. Harm was due to P’s negligence in selecting or controlling agent• Rest. 7.05(1)

– Liable to whom: any T who foreseeably could be harmed by A’s behavior– For what: hiring/retaining an A who P knew/should have known was unfit

for the job in the sense that employment placed A in position where his unfitness would create a foreseeable danger to others (MacDonald v. Hinton, [Ill.App., 2005])

• Rest. 7.05(2)– Liable to whom: T who has a “special relationship” with P. Recognized

‘special relationships’ (Iseberg v. Gross [Ill., 2007]): common carrier-passenger, innkeeper-guest, business invitor-invitee & voluntary custodian-protectee. Draft of Rest. (3rd) of Torts adds employer-employee, school-student & landlord-tenant.

– For what: foreseeable harm from A’s behavior© Amitai Aviram. All rights reserved.42

Vicarious liabilityWhy do we have it?

• Rest. §2.04 (respondeat superior): “An employer is subject to liability for torts committed by employees while acting within the scope of their employment.”

• What is the justification for vicarious liability? (explained in Patterson v. Blair)


EmployeeRest. §7.07(3)

• “An employee is an agent whose principal controls or has the right to control the manner and means of the agent’s performance of work” [7.07(3)(a)]

– A gratuitous agent may be an employee [7.07(3)(b)]Modern term

(Rest. 3rd)Traditional term

(Rest. 2nd)A has power to act on P’s

behalf

P controls results

P controls physical conduct

Non-agent [service provider]

Independent contractor (non-agent)

Non-employee agent

Independent contractor (agent-type)

Employee Servant


EmployeeBrooks v. Grams, Inc. [Ky. App., 2008]

• Apryl, who works for Gram’s Grocery, asked her husband Ferand to drive to WalMart to buy sausage for the grocery

– Ferand causes an accident that kills him & injures Brooks– Brooks sues Grams; trial court finds Ferand was not an agent

• Appelate court: Ferand may have been an agent– If Apryl had authority to ‘employ’ Ferand– Or by ratification, if Fitzgerald ratified Apryl’s acts (e.g., by warning

Ferand about the weather)• But Grams’ liability depends on Ferand being Grams’ employee

– Rest. §7.07(3)(a): Did P control the manner & means of A’s performance of work?

– Court suggests several criteria to determine whether Ferand was an employee


EmployeeBrooks v. Grams, Inc.

• Court: Ferand was not an employee [Green=non-emp.; Red=emp.]a) Extent of control which P may exercise over details of the work

• Telling Ferand to drive carefully because of weather isn’t much control; specific attention to control over instrumentality that caused the harm (car & driving)

b) Is A engaged in a distinct occupation/business?• Neither a distinct occupation of driver, nor same occupation (grocer)

c) Is work usually done under P’s direction, or by a specialist wo/ supervision?• Task normally would have been done by Fitzpatrick or Apryl

d) Skill required in the particular occupation [less skill = employee]• Only driving skills required

e) Who supplies the instrumentalities, tools & place of work for A?• Ferand supplied the car, but Apryl supplied the money; specific attention to

supplying instrumentality that caused the harm (car)f) Length of time for which A is employed [long = employee]

• Short period of time (one trip to WalMart)g) Method of payment, whether by the time or by the job [by time = emp.]

• No payment at all; Ferand acted gratuitouslyh) Is the work a part of the regular business of P? [yes = employee]

• Yesi) Do the parties believe they are creating an employment relationship?

• No© Amitai Aviram. All rights reserved.47

Scope of employmentRest. §7.07 (2)

• “An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer's control.”

– But an act may be within SoE even if:• It is forbidden or done in a forbidden manner• It is consciously criminal or tortuous

• “An employee's act is not within the scope of employment when it occurs within an independent course of conductnot intended by the employee to serve any purpose of the employer.”


Scope of employmentPatterson v. Blair [Ky. 2005]

• Patterson buys car from car dealer Courtesy Autoplex– Owes them $3K, but doesn’t pay– When employees try to repossess car, Patterson threatens to kill them– Blair (Courtesy’s service manager & son of owner) encounters Patterson on the

road. When Patterson refuses to exit the car, Blair draws a gun & shoots car’s tires, disabling it & allowing Courtesy to repossess it

– Patterson sues Blair & Courtesy– Is Courtesy liable for Blair’s actions?

• Was Blair Courtesy’s employee?• Was the shooting within Blair’s SoE?

– Rest. §7.07(2) positive tests• performing work assigned by the employer?• engaging in a course of conduct subject to

the employer's control?– Rest. §7.07(2) negative test

• not intended by the employee to serve anypurpose of the employer


Scope of employmentPatterson v. Blair

• Purpose test (Rest. 7.07(2)): act is within SoE if A subjectively acted to serve a purpose of the employer

– Here, no doubt this was Blair’s goal – his purpose in shooting tires was to repossess the car for Courtesy

– What facts, if discovered, would make Blair’s actions out of SoE?• Foreseeability test (Bushey): act is within SoE if P can foresee that A

might cause T harm of similar kind– If similar kind of harm is foreseeable, P is liable even if the particular harm

was unforeseeable• E.g., Courtesy would be liable if physical conflict with Patterson was foreseeable, even if

shooting car’s tires was not foreseeable– P not liable if A’s actions do not relate to the employment

• E.g., no liability if Blair was settling a personal score with Patterson– Is Courtesy liable under the foreseeability test?


Scope of employmentForeseeability vs. purpose

• Restatement commentary acknowledges the existence of the foreseeability test, and rejects it

• The Patterson court rules that Kentucky follows purpose test– Most jurisdictions follow the purpose test– On exam apply purpose test only, unless instructed otherwise


Scope of employmentPractice questions

• Manning v. Grimsley [CA1, 1981]– Orioles pitcher Grimsley throws ball at hecklers, injuring Manning– What would Manning argue to hold the Orioles liable?

• Lyon v. Carey [CADC, 1976]– Furniture delivery person (Carey) told to collect bill upon delivering the

furniture & to only accept cash. He got into an argument with a customer (Lyon) who wanted to pay by check. He raped, beat & stabbed her.

– What would Lyon argue to hold Carey’s employer liable?– Tort must be a direct outgrowth of employer’s instructions or job assignment

(it’s not enough that job provides the opportunity to commit the tort)


Vicarious liabilityTorts involving apparent authority

• Restatement §7.08: “A principal is subject to vicarious liability for a tort committed by an agent in dealing or communicating with a third party on or purportedly on behalf of the principal when actions taken by the agent with apparent authority constitute the tort or enable the agent to conceal its commission.”

• Typically relevant torts– Tortuous misrepresentation– Conversion of property– Defamation



• Example: tortuous misrepresentation– A is a salesperson at a bookstore specializing in rare books. T inquires about a

particular book, and A misrepresents to him that this is an extremely rare book that is worth twice the prices the store is selling it for. Relying on this, T buys the book, which turns out to be common.

– Bookstore is liable to T, if T can show that – based on A’s position as salesperson (manifestation by P) – he reasonably believed that A was authorized to make representations about books. In that case, act with apparent authority constituted the tort (of tortuous misrepresentation).

• Example: conversion of property– A is a salesperson at a bookstore specializing in rare books. T wishes to buy a

particular, fragile book. A takes the money & persuades T to leave the book with the bookstore to properly store it. A then disappears with the cash and the book.



• Example: defamation– A is a security guard in a store. A falsely accuses shopper T (with whom he has

a private dispute) of shoplifting. Store is liable under §7.08 because T would reasonably believe that A was authorized by the store to act in the way that constituted the tort (A’s shoplifting accusation), based on the manifestation that A is a security guard there.

– Note: outside SoE (personal motivation), so no liability under §7.07• Example: concealing a tort (misrepresentation)

– A works at a bookstore specializing in rare books. Certain book has mold on it, reducing its value. A paints over the mold to hide it (but mold still endangers book, so book’s value still reduced). A sells book to T, not telling T that book has (painted-over) mold.

– Bookstore liable to T if A has apparent authority to fix books & the “fix” concealed the misrepresentation of not disclosing book’s mold problem


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