Agency and Partnership

Question 1

Requirements for an Agency Relationship

Answer 1

(1) consent by both principal and agent that the agent will act for the principal’s benefit and
(2) that the agent is subject to the principal’s control.

Authority to act for the principal can terminate in several ways, including the principal manifesting a desire to the agent to discontinue the relationship.

Question 2

How is a Principal Bound on a Contract Entered into by an Agent?

Answer 2

The principal is bound on a contract entered into by an agent if the agent had authority to enter into the contract.

Question 3

Actual Authority

Answer 3

Actual express authority: the agent is expressly given authority to act for the principal.

Actual implied authority: present when the principal’s conduct leads the agent to believe it has authority. This authority can be implied by custom, past course of conduct by the principal, necessity, or an emergency circumstance. The authority terminates after a reasonable time or following a change in circumstances, death or incapacity of the principal, etc.

Question 4

Apparent Authority

Answer 4

The elements of apparent authority are:
(1) the person dealing with the agent must do so with a reasonable belief in the agent’s authority and
(2) the belief must be generated by some act or neglect on the part of the principal.

Question 5

Ratification

Answer 5

Even if the agent did not have authority to enter into a transaction, the principal can ratify the acts (and thus become liable) by expressly or impliedly affirming or accepting the benefit or the acts, so long as the principal knew the material facts and had capacity.

Question 6

When is an Agent Liable?

Answer 6

The agent is bound to a third party on a contract he enters into with a third party if the agent had no apparent or implied authority to enter into the contract.

The agent is also liable if the principal is undisclosed (i.e. the third party does not know the agent is acting on another’s behalf) or if the principal is “partially disclosed” (i.e. the third party knows the agent is acting on behalf of another but does not know the indentity of the principal).

The agent is bound to the principal for breach of contract if the agent acts beyond his authority.