Reference no: EM131461767

Journal Entry

Gilbert Church owned a horse-breeding farm in Illinois. Ads for the breeding rights to the stallion Imperial Guard directed all inquiries to "Herb Bagley, Manager." Vern and Gail Lundberg signed a preprinted contract with Bagley for those rights. Bagley added a handwritten statement that guaranteed the Lundbergs "six live foals in the first two years." The Lundbergs had obtained one foal when Church moved Imperial Guard to Oklahoma. The Lundbergs filed a suit in an Illinois state court against Church for breach of contract. Church claimed that Bagley was not authorized to sign contracts for Church or to change or add terms. The jury awarded the Lundbergs $147,000 in damages. Church appealed.

A state intermediate appellate court affirmed. A principal may be bound by the unauthorized acts of an agent if the principal leads a third party to believe, or allows a third party to believe, that the agent has authority to perform the act. In this case, Church approved the ad listing Bagley as Church's manager and point of contact. The contract had a preprinted line for his signature. Church was not engaged in the negotiation or signing of the contracts. Under these circumstances, a reasonable third party would believe that Bagley had the authority to modify the preprinted contract.

Would it have affected the outcome of this case if Bagley were construed as an independent contractor? Explain.

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