Page 25 - John Hundley 2013

Focus on Contract Law

Sharp Thinking

No. 92 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. June 2013

Verify Agent’s Authority When Making Contract

By John T. Hundley, jhundley@lotsharp.com, 618-242-0246

A party who fails to verify that a purported corporate representative has authority
to make a contract on the corporation’s behalf assumes a risk that he does not under
a recent decision by a panel of the Appellate Court in Chicago.

In Cove Mgmt. v. AFLAC, Inc., 2013 IL App (1st) 120884, an independent
contractor associated with AFLAC rented space in its name but later breached the
lease agreement. His agreement with AFLAC specifically provided that he was
without authority to bind AFLAC to any space rental agreement. Nonetheless, plaintiff
sought to hold AFLAC accountable under the doctrine of apparent authority.

Noting that apparent authority “is authority imposed by equity” and is “rooted in
the doctrine of equitable estoppel,” the court rejected plaintiff’s plea. Hundley

Apparent authority “is such authority as the principal knowingly permits the agent to assume or which
he holds his agent out as possessing – it is 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,”
the court said. “Apparent authority in an agent to do an act for his principal must be based on the
words and acts of his principal and cannot be based on anything the agent himself has said or
done.” Because plaintiff relied exclusively on statements and representations of the agent, plaintiff’s
apparent authority claim was not well taken, the court said.

Moreover, the court said the doctrine of apparent authority requires that the claimant have
“reasonably and detrimentally relied upon the agent’s authority.” Accordingly, it disregarded the agent’s
use of AFLAC’s trademarks and other evidence that were not submitted to plaintiff before it leased the
premises, because they were not relied upon in making the contract.

The court also relied upon plaintiff’s negligence in failing to investigate the extent of the agent’s
authority. Noting that one dealing with an agent “may not . . . blindly trust the agent’s statements,” the
court said plaintiff had “burden of determining for [itself], by the exercise of reasonable diligence and
prudence, the existence or nonexistence of the agent’s authority to act in the premises.”

Unconscionability Defense Upheld in Mortgage Refund Case

Illinois’ rule against enforcing unconscionable contracts is not completely lifeless, a recent decision in
the Appellate Court’s First District demonstrates.

At issue in Crown Mortgage Co. v. Young, 2013 IL App (1st) 122363, was a contract pursuant to
which “Unclaimed Funds Unit, LLC” sought to retain for itself 50% or more of surpluses that had accrued
in mortgage foreclosure sales involving unrepresented homeowners who had failed to petition for the
payment of those surpluses to them. After Unclaimed scoured court records looking for such situations

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
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