Agency: liability of the principal at contract

Question 1

Actual authority: express

Answer 1

Express actual authority exists when the principal directly tells the agent that she has authority to take certain actions:

• by oral or written words;
• clear, direct, and definite language; or
• specific and detailed terms and instructions.

Question 2

Actual authority: implied

Answer 2

Implied actual authority is based on the agent’s reasonable understanding of the principal’s instructions.

Question 3

Apparent authority

Answer 3

For apparent authority to exist, a third person must:

(1) believe that the agent acted with actual authority; and
(2) such belief must be:

• reasonable and
• be traceable to a manifestation by the principal.

Question 4

Termination of authority

Answer 4

The principal has the power to terminate an agency relationship at any time.

To terminate actual authority, the principal must inform the agent that her authority is revoked.

To terminate apparent authority, the principal must tell the third party that authority is revoked.

Question 5

Ratification

Answer 5

A principal can ratify (affirm) an act performed by an agent even if the agent did not have authority to act.

Ratification requires that:

(1) The principal ratify the entire contract;
(2) The principal and third party have legal capacity to contract;
(3) The ratification occur before the third party withdraws from the contract; and
(4) The principal know the material facts of the transaction.

Question 6

Undisclosed principal: estoppel

Answer 6

An undisclosed principal is liable to a third party if:

(1) the third party is induced to make a detrimental change in position by an agent without actual authority;
(2) The principal knew of the agent’s conduct and that it might induce others to change positions; and
(3) The principal did not take reasonable steps to notify the third party of the facts.

Question 7

Undisclosed principal: instructions to an agent

Answer 7

An undisclosed principal may not rely on instructions given to an agent:

• that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have
• under the same circumstances if the principal would have been disclosed.

Question 8

Undisclosed principal

Answer 8

A principal is undisclosed if the third party has no notice of the principal’s existence.

If the principal’s agent had authority to bind the principal to the contract, then both the principal and the agent are parties to the contract with the third person.