Agency - Contracts Entered by Agents Flashcards
What is the test for whether a principal is liable for a contract entered into by its agent?
Principal is liable for contracts entered into by its agent only if the principal authorized the agent to enter into the contract.
What are the four types of authority?
- Actual express authority;
- Actual implied authority;
- Apparent authority;
- Ratification.
What is Actual express authority?
Principal used words to express authority to agent. Established written or orally and can be created privately.
What is the exception to actual express authority?
If the contract entered into must be in writing, then the express authority must also be in writing. (Really only applies to land contracts)
How can express authority be revoked?
- unilateral act of either the principal or the agent;
2. Death or incapacity of the principal.
Hypo: Paula collects rare books. She hires Alice to find a rare book to complete her collection. Alice searches everywhere for the rare book. As Alice is about to pay for the book, Paula dies. Is Paula’s estate bound by the contract and liable to pay for the book?
Principal is liable only on its authorized contracts. In this case, actual express authority did terminate upon the death of Paula, the principal. Therefore, the estate will not be liable on this unauthorized contract. Therefore, Alice becomes personally liable on the contract.
What is the exception to the rule that express authority terminates upon the death or incapacity of the principal?
If the principal gives the agent a durable power of attorney. A power of attorney is a written expression of authority to enter a transaction and if it is durable then it will survive.
What is actual implied authority?
Authority which the principal gives the agent through conduct or circumstance. Can be formed through:
- necessity: an implied authority to do all tasks which are necessary to accomplish an expressly authorized task;
- Custom: Therei s implied authority to do all tasks which, by custom, are performed by persons with the agents title or position;
- Prior acquiescene by the principal: implied authority to do all tasks which the agent believes to be authorized to do from prior acquiescense of the principal.
What is the two part test for apparent authority?
- Principal ‘cloaked’ agent with the appearance of authority; and
- third party reasonably relies on appearance of authority.
Hypo: Charles owns an antique store. A shipment of antique clocks arrives from London. Charles tells his employee Dufus not to sell a special grandfather clock. Charles goes to lunch. Dufus sells the clock. Is Charles bound on the sales contract?
The principal is liable on its authorized contrats. In this case, there was no actual express or implied authority to sell the clock. Nonetheless, there was apparent authority because charles did cloak Dufus with appearance of authority and the third party buyer may rely upon the appearance. therefore, charles is liable based on apparent authority.
What is Ratification and how is it established?
Authority can be granted after the contract has been entered, if:
- Principal has knowledge of all material facts regarding the contract; and
- Principal accepts the contracts benefits.
What is an exception to ratification of a contract?
the principal cannot alter the terms of the contract or it is not a valid ratification.
What is the general rule for when a agent is liable on an agent entered contract? And what is the exception?
The principal is liable on its authorized contracts and therefore as a rule authorized agents are not liable on their authorized contract.
Exception: The unidentified or undisclosed principal – If principal is partially disclosed or undisclosed, authorized agent may nonetheless be liable at the election of the third party.
