Agency

Question 1

Contracts: Actual Authority

Answer 1

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

Question 2

Contracts: Apparent Authority

Answer 2

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 3

Undisclosed Principal

Answer 3

A principal is an undisclosed principal 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, when the agent does not inform a third party of the identity or the existence of the principal, the agent becomes liable to the third party on the contract.

Question 4

Ratification

Answer 4

However, a principal can ratify an act that was done on the principal’s behalf. There are four requirements for ratification: (i) the principal must ratify the entire contract; (ii) the principal and the third party must have legal capacity to enter into the contract; (iii) the ratification must occur before the third party withdraws from the contract; and (iv) the principal must know the material facts of the transaction.

Question 5

Doctrine of Vicarious Liability

Answer 5

The doctrine of vicarious liability asserts that a principal is liable for the acts of an agent, even though the principal is innocent of fault and not directly guilty of any tort or crime. Under the doctrine of respondeat superior, a principal may be vicariously liable for a tort committed by an agent acting within the scope of his employment. The principal is liable despite the absence of tortious conduct by the principal. This is also known as “derivative liability.” An employee acts within the scope of employment when either performing work assigned by the employer, or engaging in a course of conduct subject to the employer’s control. When an employee acts independently of any intent to serve any purpose of the employer, the employer may escape liability.