Agency

Question 1

When does an agent have the power to bind the principal to a contract?

Answer 1

An agent can bind the principal to a contract when the agent acts with actual or apparent authority.

(More on other cards)

Question 2

What is actual authority?

Answer 2

Actual authority exists when the principal makes a manifestation that causes the agent to reasonably believe that the agent is authorized to act on the principal’s behalf. It may be express or implied.

Question 3

What is apparent authority?

Answer 3

Apparent authority exists when a third party reasonably relies on manifestations by the principal concerning the agent’s authority to act on the principal’s behalf.

Question 4

If the principal is undisclosed, is the agent liable on the contract?

Answer 4

A principal is undisclosed if the third party has no notice of the principal’s existence. An agent who enters into a contract on behalf of an undisclosed principal becomes a party to the contract. Thus, the agent is liable to the third party on the contract.

Question 5

What is the effect on liability if the principal is partially disclosed?

Answer 5

A principal is partially disclosed if the third party has notice of the principal’s existence but not of the principal’s identity. Unless the agent and third party agree otherwise, the agent becomes a party to the contract. Thus, the agent is liable on the contract.

Question 6

What is ratification? What are the four requirements?

Answer 6

Ratification is when the principal ratifies an act that was done on the principal’s behalf. The four requirements are:

1. The principal must ratify the entire contract;
2. The principal and third party must have legal capacity to enter into the contract;
3. The ratification must occur before the third party withdraws from the contract; and
4. The principal must know the material facts of the transaction.

Question 7

What is the effect of ratification on an undisclosed principal transaction?

Answer 7

If the principal ratifies the act done on his/her behalf (looking at the four factor test), the undisclosed principal becomes liable on the contract. The agent is also liable on the contract.

Question 8

What is the effect on principal liability if the agent acts without actual or apparent authority?

Answer 8

If the agent acts wihtout actual or apparent authority, the principal is not liable on the contract.

Question 9

When does apparent authority apply in the context of a partnership?

Answer 9

For apparent authority to apply, the partner must perform the unauthorized act in the ordinary course of apparently carrying on either the partnership business or business of a kind carried on by the partnership.

However, the third party cannot hold the partnership liable when that party knew (actual knowledge) or had notice that the partner lacked authority.

Example: Partner authorized to do A, B, and C; does D; third party doesn’t know Partner can’t do D; LLP still liable