Holding a Principle Liable for Actions of an Apparent or Ostensible Agent in Illinois

Author: LegalEase Solutions 

  • 735 ILCS 5/2-624.  Requirements for Claims Based Upon Apparent or Ostensible Agency

    Sec. 2-624. Requirements for Claims Based Upon Apparent or Ostensible Agency. In any action, whether in tort, contract, or otherwise, in which the plaintiff seeks damages for bodily injuries or death by reason of medical, hospital, or other healing art malpractice, to state a claim based upon apparent or ostensible agency, a party must allege with specific facts and prove the following:(i) that the alleged principal affirmatively represented to the party that the alleged agent was the alleged principal’s actual agent;(ii) that the party reasonably relied upon the alleged principal’s representations that the alleged agent was the alleged principal’s actual agent; and(iii) that a reasonable person would not have sought goods or services from the alleged principal if that person was aware that the alleged agent was not the alleged principal’s actual agent.

    A party basing a claim upon apparent or ostensible agency shall prove these elements by a preponderance of the evidence.

(I) ILLINOIS CASES WHERE THE COURTS HAVE HELD THAT PRINCIPAL CANNOT BE HELD LIABLE FOR CLAIMS AGAINST THE AGENT.

  1. Dow v. Abercrombie & Kent Int’l, Inc.,2000 U.S. Dist. LEXIS 7290

The Plaintiffs purchased an African safari tour package from the defendant, an Illinois corporation that arranges and sells travel services and tour packages, including safaris, to destinations throughout the world. While on the safari, plaintiffs were attacked and robbed by bandits while camping. Plaintiffs contended that defendant was liable for their injuries because it operated and controlled their ground services and camping arrangements. As a result, plaintiff filed suit alleging negligent misrepresentation, violation of the Illinois consumer fraud and deceptive business practices act, breach of duty to protect guests, breach of duty to respond in an emergency, and refund of money and an injunction against charging the plaintiffs for the price of the safari until completion of this litigation. Defendant moved to dismiss plaintiffs’ complaint pursuant to Fed. R. Civ. P. 12(b)(6), or in the alternative, for summary judgment pursuant to Fed. R. Civ. P. 56.

The  plaintiff’s relied on the Defendant’s  use of the same logo by the Illinois corporation and that of its associate  in Kenya.    However, use of the same logo does not establish agency.  The court concluded that  the Plaintiff  is not liable for its  associate’s   alleged negligence because they have similar names and that “the distribution of marketing material by  the Plaintiff  in which there is no differentiation between  the Plaintiff and the Egyptian travel agent is insufficient to impute liability  to the Plaintiff.  Id. at 166.

The court granted defendant’s motion, finding that plaintiffs failed to show any statement in the itinerary suggesting defendant’s provision of or control over camping and security services.

The court explained that under Illinois law, the existence and scope of an agency relationship are questions of fact, to be decided by the trier of fact, unless the relationship is so clear as to be undisputed. The same rule is applied when choosing between agency and independent contractor status. For actual agency, the right to control the manner in which the work is to be done is the predominant factor in determining the existence of a principal-agent relationship, regardless of whether or not the principal exercises that right to control

  1. Raclaw v. Fay, Conmy & Co., 282 Ill. App. 3d 764 (1st District, 1996)

The corporation had allowed the brother-in-law to use its office space and receive mail and phone calls there. The brother-in-law told his in-laws that he worked there and convinced them to invest in an alleged mortgage money account marketed by the corporation. He then used the money for his own personal benefit. The in-laws had become convinced that he worked for the corporation because they called him at the corporation and the brother-in-law had acquired the corporation’s stationary and used it to write to his in-laws. When they discovered what had happened, the in-laws filed an action against the corporation and the brother-in-law, and the trial court entered judgment against the corporation, holding it liable for the brother-in-law’s acts.

On appeal, the appellants argued that the corporation had cloaked the brother-in-law with apparent agency by permitting him to (1) occupy a portion of its business offices at various times; (2) utilize its business telephones; (3) utilize its receptionist to receive incoming telephone calls and take telephone messages on his behalf, including incoming calls; (4) receive business mail at its offices, including personal bank statements, and (5) access its stationery.  The appellate court disagreed and reversed the trial court’s decision.  Id. at 768.

The court explained its decision: disagree, stating that the corporation did not by its conduct or actions hold the brother-in-law out as its agent.  Id.  The court reasoned that there was no evidence that the corporation cloaked the brother-in-law with apparent authority to act on its behalf or that it consented to or knowingly acquiesced to the brother-in-law’s exercise of authority on its behalf.  Id.  The court found that the acts of allowing the brother-in-law to use its address, office, and telephones, alone, did not constitute the corporation’s knowing consent or acquiescence to the brother-in-law’s exercise of authority on its behalf. Id.

  1. Indemnity Ins. Co. v. Midwest Transfer Co., 184 F.2d 633 (7th Cir., Ill, 1950)

The insurer issued a fleet insurance binder to the insured through the efforts of an insurance agent who was not an authorized agent for the insurer. The agent represented that the premium for the insurance would be no more than $ 2.50 per $ 100 of gross receipts. The actual premium totaled $ 4.50 per $ 100 of gross receipts and, after the parties mutually canceled the insurance policy, the insurer sought the balance of the premiums owed by the insured. The district court entered judgment for the insurer and the insured appealed on the grounds that the insurer, by designating the agent as an agent in certain insurance policies and binders issued by it, clothed him with apparent authority to act as its agent and that the insurer was thus estopped from denying that the agent had the authority to act on its behalf. The court remanded the case to the district court for a finding of whether the agent had apparent authority to act on behalf of the insurer and, if so, whether the insured dealt with the agent in reliance upon the existence of his apparent authority so to act.

The court stated that implied authority is defined as actual authority circumstantially proved: authority implied from the facts or from authority expressly granted; whereas apparent authority, or authority by estoppel, is authority which one has been held out as possessing or has been permitted to exercise under such circumstances as to preclude a denial of its existence.  Id. at 635.

  1. Amcore Bank, N.A. v. Hahnaman-Albrecht, Inc., 326 Ill. App. 3d 126

Plaintiff bank, which had brought an action for default on a loan, sought review of the judgment of the circuit court which found in favor of defendant successor trustee, who was substituted as an individual guarantor after the original trustee died. The trial court held the guaranty was invalid since the signor, who had a durable power of attorney, had no authority to sign it.

The original trustee had Parkinson’s disease which caused increasing dementia. He set up a trust with himself as trustee with the successor trustee authorized to succeed him after he became unable to handle his affairs. The trust had been amended and it was determined the original trustee’s son would act as an advisor with the power to vote the family securities and veto their sale. The amendment stated the original trustee did not want to increase his investment in a certain company. Representatives for that company met with a representative of the bank in order to obtain a line of credit. The bank authorized the loan after the original trustee’s son signed the guaranty for the line of credit. The appellate court held the original trustee never explicitly gave his son the authority to sign guaranties on his trust’s behalf. Further, circumstantial evidence showed he did not intend his son to have that authority. Nor was there any ratification by the successor trustee since the son was not its agent. Thus, the trial court’s ruling was not against the manifest weight of the evidence.  The judgment of the trial court was affirmed.

The party alleging an agency relationship must prove it by a preponderance of the evidence. Whether an agency relationship exists and the scope of the purported agent’s authority are questions of fact. Consequently, the appellate court will reverse the trial court’s findings on such issues only if they are against the manifest weight of the evidence. A finding is against the manifest weight of the evidence only when an opposite conclusion is apparent or when the finding appears to be unreasonable, arbitrary, or not based on the evidence

  1. Sphere Drake Ins. Ltd. v. Am. Gen. Life Ins. Co., 376 F.3d 664

Plaintiff asserted that its broker had written the contract in breach of an express limit on the amount of premium the broker was authorized to accept. The district court found that plaintiff’s broker overstepped its authority in writing the retrocession and that defendant’s broker knew that plaintiff’s broker lacked authority. Accordingly, the district court held that plaintiff’s broker lacked actual and apparent authority to bind plaintiff to the retrocession. The court affirmed the judgment. Because the premium limit was exceeded when the retrocession was written, the court agreed that there was no issue of material fact that the broker lacked the actual authority to accept the retrocession. Apparent authority was not established because the evidence showed that plaintiff did not knowingly acquiesce in the broker’s exercise of authority. Further, it was not reasonable for defendant to conclude that the broker was authorized to bind plaintiff to the retrocession because defendant had the means to determine the extent of the broker’s authority. Finally, the court found that the district court properly rejected defendant’s affirmative defenses of ratification, waiver, and estoppel.

  1. Schoenberger v. Chicago Transit Authority, 84 Ill. App. 3d 1132 (1st. District)

The employee sued to recover contract damages for breach of a promise that he would receive a $ 500 increase in salary within a specified period of time. At trial, he testified that he accepted the job, in part, because, during the hiring process, the job recruiter had assured him that he would be paid the extra amount within a few months of hiring. The employee had not inquired into the recruiter’s authority to discuss salary matters with him and the employer insisted that the recruiter had no authority to make such a promise. Judgment was entered for the employer. In affirming on review, the appellate court ruled that the trial court’s findings were not palpably contrary to the manifest weight of the evidence. The recruiter’s authority to bind the employer-principal would not be presumed, but was required to be proven by some act of the employer. The employee failed to show that the recruiter had actual authority as agent of the employer to promise a $ 500 salary increase, that there was apparent authority to make such a promise, or that the employer had ratified that promise.

  1. Northern Assurance Co. of Am. v. Summers,  17 F.3d 956 (7th Cir., 1993)

Appellants sought review of a decision from the United States District Court for the Southern District of Indiana, Terre Haute Division, which determined that no coverage existed under an automobile insurance binder or under a policy issued due to appellant’s misrepresentations, and entered a judgment in favor of appellee on appellant’s bad faith counterclaim

The judgment was affirmed because, at the time that she filed the certificate of insurance, the insurance agent knew that the policy had been issued based on a fraudulent application and knew that appellee had reserved its rights under the policy. She also knew the insured auto was involved in a prior accident, thus defeating any policy of protecting third parties. Appellant’s personal auto acceptance standards set out specific instructions and underwriting criteria. Under those standards, appellant did not qualify for insurance because she was not currently insured for automobile liability coverage by a standard carrier, and because she was not willing to let appellant insure her son. Appellee provided documentary evidence to support its position that the underwriting criteria were provided in writing to the agent. Not only would the omitted information have prevented the contract, but the agent’s complicity to deceive the principal also prevented the agent’s knowledge from being imputed to appellee. For appellee to be bound by the agent’s actions in filing the certificate of insurance, she must have had actual authority to do so.

The judgment was affirmed because the insurance agent did not have actual or apparent authority to issue an insurance binder on behalf of appellee, and the insurance contract appellee issued was voidable because the exclusion of an accident constituted a material misrepresentation

The general rule regarding a principal’s liability to third persons for the acts of his agent, as regards contractual liability, rests upon the determination of whether the acts of the agent were committed in the principal’s behalf and within the actual or apparent scope of the agent’s authority. A principal is not bound when an agent acts outside its authority in executing a contract purportedly on the principal’s behalf.

  1. Blutcher v. EHS Trinity Hosp., 321 Ill. App. 3d 131 (2001)

Claimant’s lawyer executed and forged the claimant’s signature on settlement documents, and received and negotiated a settlement check, without the knowledge of, or authority from, or payment to his client. Based on the settlement documents, the trial court dismissed the action against the hospital. When claimant learned of the dismissal, he retained new counsel and petitioned the court to reinstate the case. The appellate court held that an attorney’s authority to represent a client was separate from the authority to settle a lawsuit. The attorney had to receive the client’s express authorization to settle. Because claimant had not given the required authority to settle, the settlement was invalid, and the trial court properly reinstated the case

Trial court’s reinstatement of claimant’s case was affirmed.

The authority of an attorney to represent a client in litigation is separate from the authority to compromise or settle a lawsuit. The attorney must receive the client’s express authorization to do so. Where a settlement is made out of court and is not made a part of the judgment, the client will not be bound by the agreement without proof of express authority. The burden of proof rests on the party alleging authority to show that fact

A principal who has placed an agent in a situation where he may be presumed to have authority  to act is estopped as against third persons from denying the agent’s apparent authority.”

Although the authority of an attorney to represent a client is presumed, the authority of an attorney to settle is not presumed, and cannot be done without express authorization

  1. Davis Cos. v. Emerald Casino, Inc., 2003 U.S. Dist. LEXIS 16039

Plaintiff stock purchaser sued defendants, a casino owner, a controlling stockholder, and the controlling stockholder’s son, alleging breach of contract, fraudulent misrepresentation and civil conspiracy regarding his contracts for the purchase of stock in the casino owner’s casino. The casino owner, controlling stockholder, and son moved for summary judgment.

The court initially held that, although the second oral contract was enforceable, the son lacked the authority to enter into a contract on the controlling stockholder’s behalf and otherwise could not perform the contract’s conditions in his individual capacity, and that the purchaser was unable to establish any evidence that an agency relationship existed between the controlling stockholder and his son as the purchaser based his apparent agency contention on statements made by the son, and there was no evidence of ratification. The court further held that the first and second contracts were unenforceable because they were formed in violation of Ill. Admin. Code tit. 86, §§ 3000.140(a), (b), and 3000.235(a). The court then held that material factual issues existed on the purchaser’s fraud claim regarding whether the purchaser reasonably relied upon statements by the controlling stockholder and his son, and whether there was promissory fraud. The court finally held that the purchaser’s civil conspiracy claim failed because the purchaser failed to allege any new facts beyond those in his underlying fraud claim to support his civil conspiracy claim.

Summary judgment was granted for the casino owner, former owner, and his son regarding the purchaser’s breach of contract, and civil conspiracy claims. Summary judgment was denied for the casino owner, former owner, and his son regarding the purchaser’s fraudulent misrepresentation claims.

The existence of any agency relationship and its nature and extent may be show by circumstantial evidence, but will not be presumed. The burden of proving agency and the scope of authority falls upon the person seeking to charge the alleged principal, unless ratification by the principal of his agent’s acts has occurred.

The scope of the agent’s authority may be ascertained by determining what persons of reasonable prudence, ordinarily familiar with business practices, in dealing with the agent might rightfully believe him to possess, based on the principal’s conduct; such authority as a reasonably prudent man, exercising diligence and discretion, in view of the principal’s conduct, would naturally suppose the agent to possess. A third party who deals with an alleged agent has the obligation of reasonable diligence to verify both the existence and scope of the agent’s authority

  1. Gary-Wheaton Bank v. Burt, 104 Ill. App. 3d 767 (1982)

In this action by plaintiff bank against defendant notemaker to collect on a “duplicate original” promissory note given to the bank as collateral for a loan made to the debtor, the Circuit Court of Du Page County (Illinois) held in favor of the notemaker. The bank appealed.

The notemaker had executed an installment promissory note in favor of the debtor, in which the notemaker was a limited partner, and the debtor applied to the bank for a loan. The bank wanted the notemaker to personally guarantee the loan, but he refused and offered to pledge the previously executed note as collateral instead. At the time of closing the original note was out of state, and the notemaker executed a “duplicate original” and instructed the debtor to tell the bank not to disburse the loan proceeds until the bank had secured the original note. The bank disbursed without obtaining the original, and it was later discovered that the original, unbeknownst to the notemaker, had already been pledged as collateral to a third party. The court held that under these facts and circumstances, it was clear that by executing the duplicate original, the notemaker was not agreeing to take on any indebtedness beyond the original note. The court refused to allow the bank to recover under any theory of fraud where there was no evidence that the notemaker had misled the bank or that the bank was deceived as to the nature of the document that they had accepted as collateral.

Six elements must be presented for the doctrine of equitable estoppel to be applicable: (1) Words or conduct by the party against whom the estoppel is alleged constituting either a misrepresentation or concealment of material facts; (2) knowledge on the part of the party against whom the estoppel is alleged that representations made were untrue; (3) the party claiming the benefit of an estoppel must have not known the representations to be false either at the time they were made or at the time they were acted upon; (4) the party estopped must either intend or expect that his conduct or representations will be acted upon by the party asserting the estoppel; (5) the party seeking the benefit of the estoppel must have relied or acted upon the representations; and (6) the party claiming the benefit of the estoppel must be in a position of prejudice if the party against whom the estoppel is alleged is permitted to deny the truth of the representations made.

(II) ILLINOIS CASE LAWS WHERE THE COURTS HELD THE PRINCIPAL LIABLE  

  1. Wabash Indep. Oil Co. v. King & Wills Ins. Agency, 248 Ill. App. 3d 719 (1993)

Defendant insurance agency permitted a salesman to work as independent contractor selling policies for defendant. Defendant gave the salesman business cards with defendant’s address and permitted the salesman access to defendant’s post office box. The salesman stole funds plaintiff insured paid to the salesman for an insurance policy and the salesman created a fictitious policy for plaintiff. After plaintiff became aware of the theft of premiums, plaintiff insured filed suit against defendant insurance agency for deceptive trade practices. The court entered summary judgment in favor of plaintiff. The court affirmed. The court held that there were no issues of material fact precluding summary judgment. The court held that defendant was estopped from denying liability where defendant gave the salesman apparent authority to act on behalf of defendant in selling policies. The court also held that the damages were properly determined to be the amount of the premiums paid, which had been converted by the salesman.

The court affirmed the order that entered summary judgment in favor of plaintiff insured on plaintiffs deceptive trade practices action because defendant insurance agency gave the thief of plaintiff’s insurance premiums apparent authority to act on behalf of defendant.

Whether the relationship of principal and agent, or owner and independent contractor, exists is a question of fact, unless the relationship is so clear as to be indisputable.  To prove apparent agency, one must establish:
(1) the principal’s consent to or knowing acquiescence in the agent’s exercise of authority, (2) the third person’s knowledge of the facts and good faith belief that the agent possessed such authority, and
(3) the third person’s reliance on the agent’s apparent authority to his or her detriment.

A principal who has placed an agent in a situation where he may be presumed to have authority to act is estopped as against third persons from denying the agent’s apparent authority

The doctrine of estoppel developed to prevent injustice or fraud ( Northern Trust Co. v. St. Francis Hospital, 168 Ill. App. 3d at 279, 522 N.E.2d at 705), and where injury has resulted from the wrongful act of a third person, the damages flowing from the wrongful act must be borne by the party whose conduct made possible the wrongdoer’s act, breach of trust, fraud, or negligence.

  1. Williams v. Ford Motor Co., 990 F. Supp. 551, 1997 U.S. Dist. LEXIS 19023

The consumer brought an action against the automotive company based on an alleged violation of the Illinois Consumer Fraud Act (CFA), 815 Ill. Comp. Stat. 505/1. Specifically, he claimed that the automotive company and the dealership fraudulently sold him an extended service plan (ESP) in connection with the purchase of a used car, without disclosing the existence of an inspection fee. The automotive company brought a motion to dismiss the action. The consumer claimed that the automotive company was liable under the CFA for the dealership’s failure to disclose that all claims under the ESP were subject to an inspection fee. The district court denied the motion. It found that the consumer alleged facts sufficient to establish that the automotive company may be liable for the dealership’s conduct under a theory of apparent agency. Further, a claim of consumer fraud was sufficiently stated by alleging that the dealership concealed the fee or misrepresented the cost of the ESP. Clearly, the dealership’s sale of the ESP with the sale of a used automobile and its subsequent provision of covered repair services constituted the type of “trade or commerce” contemplated by the CFA.

The district court found that the consumer stated a claim for relief under the CFA against the automotive company and therefore denied the automotive company’s motion to dismiss.

  1. Ballard v. Advocate Health & Hosps. Corps., 1999 U.S. Dist. LEXIS 10582

Plaintiff brought medical malpractice action against defendants, including hospital. Defendant hospital brought a motion for summary judgment, contending that plaintiff could not show that the treating physician was defendant’s agent and therefore summary judgment was appropriate. Plaintiff contended that defendant was vicariously liable for the negligence of the physician. The court determined that apparent agency required plaintiff to establish three elements: the hospital acted in a manner that would lead a reasonable person to conclude the individual alleged to be negligent was en agent of the hospital; the plaintiff must prove the hospital acquiesced in the appearance of authority; and the plaintiff acted in justifiable reliance. Plaintiff was offered no information indicating that the physician was an independent contractor. An express representation was not required, the court determined, that the person alleged to be negligent was an employee if the hospital held itself out as a provider of emergency room care without informing the patient that the care was provided by independent contractors. There were issues of material fact regarding the physician’s apparent agency

Defendant hospital’s motion for summary judgment was denied where there were issues of material fact regarding the apparent agency of treating physician in medical malpractice action.

 4. Grutzius v. Franciscan Sisters Health Care, 251 Ill. App. 3d 897

Under the doctrine of apparent authority, a hospital can be held vicariously liable for the negligent acts of a physician providing care at the hospital, regardless of whether the physician is an independent contractor, unless the patient knows, or should have known, that the physician is an independent contractor. A plaintiff must show that the hospital, or its agent, acted in a manner that would lead a reasonable person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. Also, where the acts of the agent create the appearance of authority, a plaintiff must prove that the hospital had knowledge of and acquiesced in those actions. Finally, a plaintiff must show that he or she acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. The “holding out” element is satisfied if the hospital holds itself out as a provider of emergency room care without informing the patient that the care is provided by independent contractors. The element of justifiable reliance is satisfied where a plaintiff relies upon the hospital to provide complete emergency room care, rather than upon a specific physician

  1. Owens v. Mitsubishi Motors Sales of Am., Inc., 2004 U.S. Dist. LEXIS 21764

Plaintiff consumer sued defendants, a car dealer, a car manufacturer and its financing company, alleging breach of warranty and implied warranty of merchantability, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act and common law fraud, violation of the federal odometer statute, and sought revocation of all contracts between the consumer and all defendants. Defendants moved for summary judgment.

The consumer purchased a car from the dealer which the dealer represented as a “new car” with only 472 miles. In fact the car had over 9,000 miles. The consumer had numerous problems with the car and had to repeatedly bring the car in for servicing. The court found that genuine issue of fact existed as to whether the dealer was acting as an apparent agent of the manufacturer when it misrepresented the car’s mileage. No genuine issues of material fact exist as to whether the consumer was entitled to relief against defendants for breach of implied warranty because there was no privity between the parties. There was a genuine issue of material fact as to whether the four repair attempts was reasonable under the Magnuson-Moss Warranty Act. Because the consumer had a viable claim against defendants, defendants’ request for summary judgment on the claims for revocation of acceptance and revocation of retail installment contract was denied.

Defendants’ motion for summary judgment was granted with regard to the claim of breach of implied warranty, the motion was denied with regard to all other claims.

An actual agency exists when (1) the principal has the authority to control the manner and method in which the agent performs, and (2) the agent has the power to subject the principal to personal liability

Under Illinois law, where the principal creates the appearance of authority, a court will not hear the principal’s denials of agency to the prejudice of an innocent third party, who has been led to reasonably rely upon the agency and is harmed as a result.

  1. State Sec. Ins. Co. v. Burgos, 205 Ill. App. 3d 739 (1990)

Plaintiff insurer sought review of a decision of the Circuit Court of Cook County (Illinois), which granted summary judgment to defendant administrator in the insurer’s declaratory judgment action against defendants, administrator, parents, and son.

The parents’ son shot and killed a man. The administrator of the man’s estate filed an action against the parents and the son. The insurer filed suit seeking a declaratory judgment that it did not have a duty to defend or indemnify the parents or the son in the administrator’s suit. The insurer alleged that the parents failed to notify the insurer of the incident and that they thereby failed to comply with the “notice of occurrence” provision of the subject policy. The administrator filed a motion for summary judgment, arguing, inter alia, that the parents discharged their obligation under the policy by giving notice to their insurance broker. The trial court granted the motion, finding that the notice given to the broker was sufficient. The court affirmed, holding that the insurer was estopped from denying that the broker had authority to accept the “notice of occurrence” because the insurer customarily relied on brokers to receive and forward such notices and the parents reasonably relied on the broker to forward the notice to the insurer.

The court affirmed the grant of summary judgment to the administrator in the insurer’s declaratory judgment action.