Agency - Liability of Principal to Third Parties for Contracts Entered by Agents

Question 1

When is a principal liable for contracts entered into by its agent?

Answer 1

A principal is liable for contracts entered into by its agent only if the principal authorized the agent to enter the contract

Question 2

Four types of agent authority

Answer 2

1) Actual express
2) Actual Implied
3) Apparent
4) Ratification

Question 3

Actual Express

Answer 3

Principal used words to express authority to the agent. Actual express authority can be oral and even private.
Exception: if the contract itself must be in writing, then express authority must be in writing (contracts involving the sale of land)

Actual express authority is narrowly construed

Question 4

Express authority will be revoked by:

Answer 4

1) Unilateral act of either the principal or the agent,
OR
2) Death or incapacity of the principal

Exception: when the principal gives the agent a durable (clear survival language) power of attorney

Question 5

Actual Implied Authority

Answer 5

Authority which the principal gives the agent through conduct or circumstance:

1) Necessity - implied authority to do all tasks which are necessary to accomplish an expressly authorized task
2) Custom - there is implied authority to do all tasks which by custom are performed by persons with the agent’s title or position
3) Prior acquiescence by the principal - there is implied authority to do all tasks which the agent believes to be authorized to do from prior acquiescence by the principal

Question 6

Apparent Authority

Answer 6

1) Principal “cloaked” agent with the appearance of authority, and
2) third party reasonably relies on appearance of authority

Question 7

Ratification

Answer 7

Authority can be granted after the contract has been entered if:
1) principal has knowledge of all material facts regarding the contract, and
2) principal accepts its benefits
Exception: ratification cannot alter the terms of the contract

Question 8

The Rules of Liability on the Contract

Answer 8

General Rule: The principal is liable on its authorized contracts, and therefore an authorized agent is not liable on its authorized contracts
Exception: the undisclosed principal

Question 9

Undisclosed Principal

Answer 9

If the principal is partially disclosed (only the identity of the principal concealed) or undisclosed (fact of principal concealed), an authorized agent may nonetheless be liable at the election of the third party