Agency Flashcards
Actual Authority
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.
A principal is subject to liability on a contract if the agent acted with actual or apparent authority to bind the principal.
Express actual authority can be created by oral or written words, clear direct and definite language, or specific detailed terms and instructions. For express actual authority to exist, the principal’s manifestation must cause the agent to believe that the agent is doing what the principal wants, and the agent’s belief must be reasonable.
Apparent Authority
Exists when 3rd party reasonably relies on manifestations by a principal concerning an agent’s authority to act on principal’s behalf.
A principal is liable for a tort committed by an agent with apparent authority when the agent’s appearance of authority enables him to commit a tort or conceal its commission.
For apparent authority to exist, a third person must believe that the agent acted with actual authority, and such belief must be reasonable and be traceable to a manifestation by the principal.
- Derives from reasonable reliance of a 3rd party on the agent’s authority based on the principal’s behavior over a period of time.
An agent purporting to be acting for a principal gives an implied warranty of authority to the third party. If the agent lacks the power to bind the principal, then a breach of the implied warranty has occurred, and the agent is liable to the third party.
Undisclosed Principal
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. If the agent had the authority to bind the principal to the contract, then both the principal and agent are parties to the contract with the 3rd person.
Once the third party discovers the existence of the principal, the election of remedies doctrine requires the third party to choose to hold liable either the principal or the agent.
A principal is partially disclosed if the third party has notice of the principal’s existence but not the principal’s identity. Unless the agent and the third party agree otherwise, an agent who enters into a contract on behalf of a partially disclosed principal becomes a party to the contract.
Vicarious Liability
If an employer has the right to control the means and methods by which another performs a task or achieves a result, the person subject to this right is an employee. Absent a right to control, the person is likely an independent contractor.
An employer is liable for the tortious conduct of an employee that is within the scope of employment. Conduct within the scope of employment includes acts that the employee is employed to perform or that were intended to profit or benefit the employer.
Careful instructions directed to the employee do not insulate the employer from liability—even when the employee acts counter to the instructions—if the employee is acting within the scope of employment.
When an employee’s personal errand involves a significant deviation from the path that otherwise would be taken for the purposes of performing work, the errand is a frolic. Once a frolic begins, an employee is outside the scope of his employment until he resumes performance of his assigned work. Travel by an employee during the workday that involves a personal errand may be within the scope of employment when the errand is merely a detour
Ratification
If the agent binds the principal to the contract, or if the principal ratifies the contract, then both the principal and agent are parties to the contract with the third party
If the principal ratifies the agent’s action, then the principal is bound just as if the action had been authorized, even if the agent acted without authority.
Ratification occurs when a principal affirms a prior act that was done on the principal’s behalf. The principal must (i) ratify the entire contract, (ii) have legal capacity to ratify the transaction, (iii) ratify in a timely manner, and (iv) have knowledge of the material facts involved in the original act.
