Case Overview – Hannington v. University of Pennsylvania, 809 1. 2d 406 (Pa. Super. 2002)

 

Hannington was a graduate student at the University of Pennsylvania and brought suit against the University for breach of contract. Hannington’s attorney sent Penn’s attorney a draft of a settlement agreement, which Penn signed and sent back to Hannington. But Hannington then refused to sign the settlement agreement, hired a new attorney, and opted to proceed to trial. The trial court refused to allow Hannington’s case to go forward, holding that Hannington’s former attorney had had “apparent authority” to settle the case. Hannington appealed, and the Superior Court of Pennsylvania affirmed the trial court’s decision, ruling in favor of Penn (Melvin and Katz, 2015).

From a legal aspect, this case involves the liability of the principal for acts of the agent, specifically touching on authority, and, in this case, apparent authority. The legal definition of apparent authority is when “an agent may also gain power to bind the principal from the appearance of legitimate authority to a third party,” and the key to understanding this party is “to determine whether a third party was objectively reasonable in her belief that the apparent agent is in fact authorized to act for the principal” (Melvin and Katz, 2015). The innocent party in this case, the University of Pennsylvania, had reasonable cause to believe that Hannington’s attorney was authorized to draft a settlement agreement. This led to their decision to rely on his attorney as an agent, and to thus agree with the terms of the settlement and sign it. As The National Public Accountant states, this type of liability can arise when either a former or current employee undertakes tasks which the firm does not sanction, endorse, or normally practice, but which appear to a 3rd party to constitute services approved and endorsed by the principal (1997). In these types of cases, the client (grad student Hannington,) usually asserts that he wouldn’t have entered into business with the agent and didn’t grant him the authority to make the settlement, in spite of the fact that the situation’s appearance suggested otherwise.

From a social aspect also, Hannington does not have the right in this case. The third party, Penn’s legal representatives, had every reason to believe that Hannington’s lawyer was acting as an agent with authority for his principal (Hannington.) He had apparent authority legally to offer the settlement, but it was also obvious from the social circumstances that the lawyer was Hannington’s agent. Penn had no reason to believe that Hannington’s lawyer was acting against his client’s wishes, because an attorney does not usually do this. Nor is Penn responsible for the situation between Hannington and his attorney. All they know is that an agent with apparent authority gave them a settlement agreement, and they wanted the settlement to happen, so they signed it.

From a business perspective, “the best first step for an association to take in protecting itself from unknowingly bestowing apparent authority upon volunteers is to adopt an official policy as to who may speak for the association” (Webster, 1996). A common business example of the relationship between an agent and a principal is the bond between employer and employee. Essentially, this is what Hannington’s attorney is to Hannington. These two allowed their miscommunication issues to affect their business relationship with a third party, the University of Pennsylvania, which was bad business conduct on their part. Hannington and his attorney could have avoided putting Penn into this position altogether if they had clearly expressed to Penn the type of authority that Hannington’s attorney actually had, or adopting “an official policy as to who may speak for the association,” as Webster suggests above. In a business context, the authority of the principal over the agent is an important concept, one that can endanger their relationships with each other, their business, and their relationships with third parties. It is best that this authority is clearly defined so that these types of issues don’t happen.

From an ethical standpoint also, Hannington has no right to bring a case against the University of Pennsylvania for signing a settlement agreement that they had every reason to believe was approved by Hannington himself. Giving off the impression that someone has the authority to act for you when they don’t, endangers your business relationship with them, as well as their trust in your authority. The Bible speaks to the principles of authority, which ability Hannington in effect gave to his attorney when he hired him. Penn reasonably assumed that Harrington’s attorney had authority – and due to their limited knowledge of the true situation, they cannot be held liable for signing a document that the principal did not approve, since they had every reason to assume he had.

            1.) Suppose in the middle of settlement negotiations, Hannington becomes frustrated with the impasse. He hires his neighbor, another attorney not yet involved in the case, to draft a settlement agreement and sends it to Penn. Is apparent authority created in this circumstance? Explain.

 

           Apparent authority would still be created in this circumstance, seeing as how Penn would still reasonably assume that Harrington’s new lawyer has authority to act as an agent for his principal by drafting a settlement agreement. Whether or not the lawyer was already involved in the case is a moot point, because either way the attorney is currently acting as an agent with authority for his principal Hannington.

            2.) Since Hannington never actually signed the agreement, was it reasonable for Penn to assume that Hannington’s attorney had obtained his express consent to the terms? Has the court effectively deprived Hannington of his right to proceed to trial?

           

           Even though Hannington’s signature was not on the settlement document, Penn could still reasonably assume that the attorney had obtained his client’s consent to the terms – he was, after all, acting as an agent for Hannington, meaning that he had appearance of authority to draft documents and speak for his client. Just because Hannington did not agree, does not mean that Penn is held liable. Hannington thus had no right to proceed to trial against Penn, since Penn was acting on the apparent authority assumption of Hannington’s relationship with his attorney.

Reference:

“Apparent authority". (1997). The National Public Accountant, 42(10), 6-8. Retrieved from http://search.proquest.com/docview/232353633?accountid=12085

Melvin, Sean P. and Katz, Michael A. (2015). The Legal Environment of Business: A Managerial Approach: Theory to Practice, 2^nd Edition. McGraw-Hill Education LLC.

The Bible. KJV. Retrieved from www.biblegateway.com

Webster, G. D. (1996). Apparent authority. Association Management, 48(7), 147. Retrieved from http://search.proquest.com/docview/229293862?accountid=12085