Agency & Partnership Flashcards
Agency Relationship
(“Agency is the fiduciary relationship that arises when
one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf. .”). As Hanson’s agent, Taster had actual authority to “take action
designated or implied in [Hanson’s] manifestations to [Taster] and acts necessary or incidental to achieving [Hanson’s] objectives.
Apparent Authority
An agent has apparent authority to act on behalf of a principal when “a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the
principal’s manifestations.” RESTATEMENT (THIRD) OF AGENCY § 2.03. Apparent authority can co-exist with actual authority; it can also exist in the absence of any actual authority
Summary
Taster purported to act as Hanson’s agent. An agent acts with actual or apparent authority. Taster had actual authority to buy recipes for $5,000 cash or less. Hanson’s is clearly bound to the
contract with Monumental Muffins because Taster had actual authority to enter into that contract. Taster had apparent authority to enter into the contract with Bakers Bonanza and Hanson’s is
legally bound to that contract. Taster had no authority to reveal Hanson’s secret recipe, and it was unreasonable for Parisian Delights to believe that Taster had such authority, so Hanson’s is
not bound to that contract. Taster also had no authority to enter into the contract with Ironcast, and Hanson’s is not legally bound to that contract.
Did Taster have actual authority to buy Monumental Muffins’
muffin recipe for $4,000?
Taster had actual authority to enter into the Monumental Muffins muffin recipe contract for $4,000 on Hanson’s behalf. Therefore, Hanson’s is legally bound to that contract.
Rule and Application
When Hanson’s hired Taster to act on Hanson’s behalf, an agency relationship was created. See RESTATEMENT (THIRD) OF AGENCY § 1.01 (“Agency is the fiduciary relationship that arises when
one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf. . . .”). As Hanson’s agent, Taster had actual authority to “take action
designated or implied in [Hanson’s] manifestations to [Taster] and acts necessary or incidental to achieving [Hanson’s] objectives. . . .” Id . at § 2.02(1). The contract between Hanson’s and Taster empowered Taster to enter into contracts on Hanson’s behalf to buy baked-goods recipes for a price not to exceed $5,000. Thus, Taster had actual authority to enter into the contract to buy Monumental Muffins’ muffin recipe for $4,000, and Hanson’s is legally bound to that contract.
Did Taster have apparent authority to buy Bakers Bonanza’s tart
recipe for $6,000?
Taster had apparent authority to enter into the contract with Bakers Bonanza to buy the almond-pecan tart recipe for $6,000 on Hanson’s behalf. Therefore, Hanson’s is legally bound to that contract.
Rule
An agent has apparent authority to act on behalf of a principal when “a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.” RESTATEMENT (THIRD) OF AGENCY § 2.03. Apparent authority can co-exist with actual authority; it can also exist in the absence of any actual authority. See In re Victory Corrugated Container Corp ., 183 B.R. 373, 376–77 (Bankr. D.N.J. 1995).
Application
Here, Taster did not have actual authority to enter into contracts exceeding $5,000. Thus, Taster did not have actual authority to contract with Bakers Bonanza for $6,000. However, Hanson’s
president stated at the annual baking industry trade show that Taster would be buying recipes on Hanson’s behalf. These manifestations by Hanson’s would reasonably cause Bakers Bonanza to believe that Taster was acting with authority when contracting to buy recipes. The manifestations were made by Hanson’s president, a person entitled to speak on behalf of Hanson’s. The amount
involved ($6,000) was within the price range typically paid for baked-goods recipes. Therefore, Taster had apparent authority to enter into the contract to buy Bakers Bonanza’s tart recipe and Hanson’s is legally bound to that contract.
Did Taster have any authority to buy Parisian Delights’ cake recipe
in exchange for a copy of Hanson’s fruitcake recipe?
Taster did not have authority to buy Parisian Delights’ chocolate truffle cake recipe in exchange for Hanson’s fruitcake recipe. Therefore, Hanson’s is not legally bound to that contract.
Rule and Application
Taster did not have actual authority to buy Parisian Delights’ cake recipe in exchange for Hanson’s fruitcake recipe—in fact, Taster’s contract expressly forbids such an action. Nor did Taster have apparent authority to enter into the contract with Parisian Delights. Here, the facts state that baked-goods recipes typically sold for $3,000 to $6,000. There is no suggestion that the use of non-cash consideration is typical. Further, given Hanson’s long history in the baking industry and its close guarding of the fruitcake recipe, Parisian Delights may well have known that Hanson’s fruitcake recipe was secret and that its disclosure was not authorized. When facts
suggest it may be unreasonable for a third party to believe that a purported agent has authority, the third party has the duty to make further inquiry. See RESTATEMENT (THIRD) OF AGENCY § 2.03.
Had Parisian Delights asked Hanson’s if Taster had authority to obtain recipes for non-cash consideration, Taster’s lack of any authority would have been readily determinable.
Did Taster have any authority to buy the baking oven from
Ironcast Enterprises for $5,000?
Hanson’s is not liable to Ironcast Enterprises on the contract for the oven as Taster had no authority to enter into that contract on Hanson’s behalf.
Rule and Application
Taster had no actual or apparent authority to enter into the contract with Ironcast Enterprises to buy the baking oven on Hanson’s behalf. Actual authority does not exist because the contract limited Taster’s authority to acquiring recipes—contracting to buy an oven was not within the express grant of authority nor was it an act “necessary or incidental to achieving the principal’s objectives.” RESTATEMENT (THIRD) OF AGENCY § 2.02. Apparent authority does not exist because no acts of Hanson’s reasonably interpreted could have caused Ironcast to believe that Taster had authority to buy baking equipment. Therefore, Hanson’s is not legally bound on the contract to buy the oven from Ironcast for $5,000.
