2. Liability of Principal to Third Parties for Contracts Entered into by an Agent

Question 1

Test for whether the principal is liable for contracts entered into by its agent.

Answer 1

Principal is liable for contracts entered into by its agent only if the principal authorized the agent to enter the contract.

Question 2

There are four types of authority:

Answer 2

1. Actual Express Authority
2. Actual Implied Authority
3. Apparent Authority
4. Ratification:

Question 3

Actual Express Authority

Answer 3

Principal used words to express authority to

agent.

Question 4

Actual express authority can be (form)

Answer 4

Oral, and even private, however, if the contract itself must be in writing, then the express authority must also be in writing.

Question 5

Express authority will be revoked by:

Answer 5

1. Unilateral act of either the principal or the agent, or

2. Death of the principal.

Question 6

Actual Implied Authority

Answer 6

Authority which the principal gives the agent through conduct or circumstance

Question 7

Types of Actual Implied Authority

Answer 7

1. Necessity: There is implied authority to do all tasks necessary to accomplish an expressly authorized task.
2. Custom: There is implied authority to do all tasks which by custom are performed by persons with the agent’s title or position.
3. Prior dealings between the principal and the agent: There is implied authority to do all tasks actual implied authority to do all tasks which the agent believes to be authorized to do from prior acquiescence by the principal.

Question 8

Two-Part test for Apparent Authority

Answer 8

1. Principal “cloaked” agent with the appearance of authority, and
2. Third party reasonably relies on appearance of authority.

Question 9

Ratification

Answer 9

Authority can be granted after the contract has been entered, if:

1. Principal has knowledge of all material facts regarding the
   contract, and
2. Principal accepts its benefits.
3. Exception: Ratification cannot alter the terms of the contract.

Question 10

The principal is liable on its authorized contracts, and therefore as a rule:

Answer 10

An authorized agent is not liable on its authorized contracts, just the principal is.

Question 11

When might an agent be liable on an authorized contract?

Answer 11

The undisclosed principal—If principal is partially disclosed (only the identity of the principal concealed) or undisclosed (fact of principal concealed), authorized agent may nonetheless be liable at the election of the third party.